Debt Markets– An Interesting Opportunity All data / Information used in the preparation of this material is dated and may or may not be relevant any time. - презентация

1 Debt Markets– An Interesting Opportunity All data / Information used in the preparation of this material is dated and may or may not be relevant any time after the issuance of this presentation. Mutual Fund Investments are subject to market risks. The information contained herein are strictly confidential and are meant solely for the benefit of the addressee and shall not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of Prudent Corporate Advisory services Limited. November 21,2008

2 Global Scenario Risk aversions due to banking crisis is resulting in withdrawal of money from equities and other risk assets across the globe Central Banks are pumping up liquidity and cutting interest rates, but not achieving desired results because of extreme risk aversion Central Banks may have to cut interest rates to zero or near zero level to induce risk taking

3 Globally Declining Rates US, Japan, U.K, Euro Zone are all cutting rates and pumping liquidity to keep their economy from sinking US Fed Rate Japan Euro UK Source : Bloomberg

4 Indian Context Inflation has started declining rapidly RBI is keeping adequate liquidity RBI is cutting interest rates Election bound government will follow loose monetary policy to support growth Further policy action in line with global markets and local conditions will be most probably on the softer side

5 Indian Liquidity ParticularsLiquidity Released Liquidity Accessible Remark CRR Cut140,000CRR cut from 9 % to 5.5 % MSS Unwinding 28,300Buy back of MSS bonds from Market SLR Cut 40,000SLR cut from 25 % to 24 % SLR Accomodation 60,000Refinance facility to banks for funding NBFCs and Mutual Funds to the extent of 1.5 % of NDTL Refinance40,000Refinance facility to banks to the extent of 1 % of NDTL MSS outstanding152,366 *The RBI can buy back the MSS Bonds CRR100,000CRR Can be brought down to target rate of 3 % Total1, ,366 * As on Nov 14, 2008Rs in crore, Analysis based on Internal estimates

6 WPI is falling Source : Bloomberg WPI

7 All Components of WPI are also falling Source : Bloomberg

8 CRR is being Cut Source : Bloomberg Cash Reserve Ratio

9 Repo rate is cut Source : Bloomberg Repo Rate Can be cut further also

10 Growth is softening RBI have revised downwards Real GDP Growth target for FY 09 from 8 % plus to % CMIE have revised downwards Real GDP Growth target for FY 09 from 9.5 % to 8.2 % Citigroup, Morgan Stanley and other analysts are now estimating FY 09 Real GDP growth between 6-7 % vs earlier estimate of 8-9 %. The RBI will be now biased towards supporting growth Source : News paper Reports

11 Gilt Yields have declined rapidly Source : Bloomberg 10 Year Gilt Yield

12 Source : Bloomberg But Corporate and PSU Bond Yields have not followed 5 and 10 Year AAA rated Corporate Bond Yield

13 10 year Bond Spread is at high level Source : Bloomberg 10 Year AAA rated Corporate Bond Spread

14 Spread History Particulars29/07/0511/7/0821/11/08 10 Year Gilts 6.91 %9.47 %7.11 % AAA rated Corporate Bond 7.49 %10.85 %11.07 % Spread Source : Bloomberg

15 We expect Policy stance to be biased towards Pro Growth and on the softer side PF Trusts post SDS interest payment in Jan 09 will invest in PSU Bonds Low leverage of Indian Corporates Keep default risk under check Borrowing rate needs to be reduced for revival of corporate sector and GDP growth in India like in other parts of the world Spread Contraction can happen

16 Summary We expect Interest rates to decline globally We expect Interest rates to decline in India We expect Higher Rated PSU Bonds and Corporate Bond spreads to decline Income Funds provide an excellent opportunity to capture this trend

17 Thank You