ENAM Securities 1 13 August 2004 Portfolio Management 1:01 Presentation at IIM, Calicut

ENAM Securities August Some Key Concepts  Approaches to Portfolio Construction  Top Down v/s Bottom Up  Value v/s Growth  Think of Cycles… nothing is linear  Client Requirements  Match Needs, Requirements and Abilities  Risk  Use Math & Computing as tools  Make Bets Explicit  Why are you diversifying?  Your OWN Portfolio?

ENAM Securities August Elements of Portfolio Construction Growth ValueMomentum Top Down Bottom Up

ENAM Securities August Decomposing Approaches SectorCountryAsset Class Top Down Equities Bonds Currencies Property Commodities –Oil –Precious metals –Natural Resources Developed Markets Emerging Markets Regional markets FMCG Pharma Services TMT Manufacturing Cyclicals

ENAM Securities August Decomposing Approaches Volume Price Efficiency: – Costs – Assets Restructuring Payback EV/EBIDTA P/E DCF Technical Charts Reflexivity PE/G Option Value MomentumGARPValue Bottom Up Dividend Yield Price/BV Replacement Cost

ENAM Securities August Some Lessons from History  Japan V/s UK in 1944  Korea V/s India in 1950  Singapore!  Hero Honda V/s Kinetic Honda  Bharti V/s IDEA  Infosys V/s HCL  HDFC Bank V/s SBI There is NO trade-off between Top- Down and Bottom up

ENAM Securities August Think of Cycles! Nature is cyclical, not linear!  Life Cycles  Business Cycles / Boom-Bust  Seasonality  Innovation / Schumpeter  Market Cycles

ENAM Securities August Valuation Approaches Illiquid Misunderstood Hated/Uncovered Appraised value Institutional Favorites UVG Stories Imagine it! DCF or Option value Max Volume News Flow Volatile Technicals ValueGrowthMomentum In Reality, there is no distinction. Growth and Momentum are LongTerm/Short Term Value catalysts

ENAM Securities August OUR VALUATION “SCREEN”

ENAM Securities August VALUATION BENCHMARKS

ENAM Securities August Think Client Management  WHO is the CLIENT?  WHAT does he want from you?  HOW are you shaping his expectations & mindset?  WHY should he stick to you? “Most clients would rather have their fund manager fail conventionally than succeed unconventionally.” — Marc Faber

ENAM Securities August CHANGING NEEDS OVER A LIFETIME Daily Exps Durables House Own Business Equity/Bonds Property Art/Misc

ENAM Securities August KYC and Thyself! Asset Allocation Country Allocation Sector Allocation Large Cap Small Cap Pvt. Banks / Pension Funds / Macro Funds/ Fund of Funds Regional Funds Country Funds/ Mutual Funds HNW / PMS / Absolute Return Funds/ “Hedge” Funds Relative Absolute

ENAM Securities August Key Success Factors Pvt. Bankers / Pension Funds / Macro Funds Regional Funds Country Funds Absolute Return Funds Institutional Marketing Deployment of Large Pools Capital Preservation Marketing Scale & Scope Economist Fund Manager Technician Stock Picker BCA GLOBAL BCA EMG MKTS BCA CHINA INDIA FUNDS

ENAM Securities August Risk Mitigation  Formulas / Computers are tools, not cast in stone  Sterling Crisis  LTCM  Markets discount the rate of change ; most metrics measure history  Understand logic of EMT, CAPM and Beta; do not be bound by it. “Risk is something I manage between my ears.” — Warren Buffett

ENAM Securities August Make Explicit Bets  Asset / Sector / Class  Use Computing to make interrelations and risk explicit; scenario modelling  Catalyst  Reflation ; Upgrading Debt Rating ; Margins…  Valuation  Payback, DCF, etc → What will make you change your mind? → Your weightage should not be led by overconfidence !

ENAM Securities August IDEAL PORTFOLIO 75%

ENAM Securities August Decompose | Decompose | Decompose

ENAM Securities August Decompose | THEN | Consolidate  A good investor is a good businessman and vice versa

ENAM Securities August Typical Career Path to Nirvana AnalystHead of ResearchFund ManagerAbs. ManagerOwn Funds Large Fund Manager Even Larger Fund ManagerMarketing Guru

ENAM Securities August How is your Portfolio Tilted? BUILD A CONSCIOUS LIFESTYLE ! WORK COLLEAGUES PROFESSIONAL COLLEGUES OWN INTERESTS FAMILY CLIENT TIME

ENAM Securities August HEAVEN AND HELL  AMERICAN SALARY  ENGLISH HOME  GERMAN CAR  CHINESE FOOD  INDIAN WIFE  AMERICAN WIFE  ENGLISH CAR  GERMAN FOOD  CHINESE HOME  INDIAN SALARY YOUR REAL WEALTH = YOUR HAPPINESS = YOUR STATE OF MIND = WITHIN YOU

ENAM Securities August SUMMARY  UNDERSTAND YOURSELF OBJECTIVELY  UNDERSTAND THE INVESTMENT LANDSCAPE  UNDERSTAND THE UNDERLYING INVESTMENT  UNDERSTAND THE MARKET PARTICIPANTS  FOLLOW BASIC PRINCIPLES AND STICK TO THEM!  BE HAPPY!