ECOSCOPE

The Economy Observer

14 February 2013

Jan-13 inflation at 3-yr low of 6.6%

Core inflation down to 4.1%; Expect 25bp rate cut in Mar-13

WPI inflation
Jan-13 WPI inflation at three-year

Jan-13 inflation was at three-year low of 6.6% and lower than expectations. Food inflation accelerates on base While the underlying index increased, it was lower than the average for effect and seasonality; primary FY13 so far, signifying absence of any generalized price pressures on the inflation still lower economy. Fuel inflation falls sharply as a huge Food inflation, however, accelerated on a low base and seasonal effect. base effect absorbs the fuel price Within food group, inflation eased for cereals and milk. However, it hike, especially bulk diesel accelerated for vegetables, fruits and non-veg items. However, the rising Manufacturing inflation decelerates food inflation was overwhelmed by easing non-food and minerals inflation to a 37-month low of 4.8%, core to result in a deceleration in primary inflation. inflation at 34-month low of 4.1% Fuel group inflation eased significantly as a huge base effect helped absorb CPI inflation inched up to 10.8%; CPI and WPI expected to converge the impact of increased international oil price and hike in domestic fuel from Mar-13 onwards prices, especially bulk diesel. Expect end-March WPI inflation at Manufacturing inflation eased further to 37-month low since Dec-09 and much lower than the 6.8% came within the tolerable limit of RBI for the second successive month. estimated by RBI Core inflation eased further to 4.1%, the lowest for 34 months, capitalizing Expect RBI to cut rates by 25bp in on easing international commodity prices and stable INR. 19th March policy Reflecting the acceleration in food prices, CPI (rural-urban) inflation for Jan-13 accelerated to 10.8%. The divergence between WPI and CPI is expected to remain for the month of Feb-13 too before converging from Mar-13 onwards. Recent data releases, both a decline in industrial output and easing inflationary pressures, are supportive of further easing of the monetary policy. We expect RBI to cut policy rates by 25bp in the March 19, 2013 policy measure.

low of 6.6%

I. Jan-13 inflation at three-year low of 6.6%; Mar-13 target to be overachieved

Inflation lower than expectations at 6.6%: Jan-13 inflation at 6.6% was lower than expectations (MOSL 6.9%; Consensus 7%). This is the lowest inflation for more than three years since Nov-09 and represented significant deceleration from the near 7.2% of previous three months. No revision in past data: There was no change in the Nov-12 inflation data that remained static at 7.2% level. It may be recalled that the Oct-12 data was revised downwards by only 13bp. Thus, the extent of data revision has come down. Index rises after barely moving for 4 months: After remaining nearly static for four months, WPI index increased by 4% MoM, still lower than the average increase of 5% for FY13 so far. This signifies moderation in generalized price pressures on the economy. Inflationary build-up lower at 5.1%: As a result of some increase in MoM inflation, the inflationary build-up inched up to 5.1% (from 4.7% in Dec-12). At this rate, RBI's Mar-13 inflation projection (that was revised upwards to 7.5% in Oct-12 policy from 7% projected in Apr-12 and then again brought back to 6.8% in Jan-13) would be over-achieved by a wide margin.

Dipankar Mitra (Dipankar.Mitra@MotilalOswal.com); +91 22 3982 5405

Investors are advised to refer through disclosures made at the end of the Research Report.

Inflation dipped to three-year low of 6.6%

Inflationary build-up at 5.1%; MoM index rises slowly

Source: CSO, MOSL

II. Food inflation rises but core inflation down to 4.1%

Food inflation rises: Food inflation, however, accelerated (to 11.9% v/s 11.2% in Dec-12) both on base effect as well as seasonal increase in food prices. Going forward, food inflation is likely to stay in double digit for Feb-13 too before moderating to single digit level by Mar-13. Variation within food basket: Within food group, inflation eased for cereals (18.1% from 19% in Dec-12) and milk (4.5% from 5.9% in Dec-12). However, it accelerated for vegetables (28.5% from 23.3% in Dec-12), fruits (8.4% from 5.8% in Dec-12), and non-veg items (10.8% from 10.2% in Dec-12). Primary group inflation eases nonetheless: The rising food inflation, however, was overwhelmed by easing non-food (10.5% from 13.2% in Dec-12) and minerals (2.1% from 3.7% in Dec-12) inflation to result in a deceleration in primary inflation (to 10.3% from 10.6% in Dec-12). Sharp fall in fuel group inflation on base effect: Fuel group inflation eased significantly to 7.1% (from 9.4% in Nov-12) largely due to the base effect. The large base effect helped absorb the impact of increase in international oil price (somewhat mitigated by moderate INR gains) and hike in domestic fuel prices, especially bulk diesel. Manufacturing inflation eases further to 4.8%: Manufacturing inflation eased further (to 4.8% from 5% in Dec-12) i.e., a 37-month low since Dec-09 and came within the tolerable limit of RBI. Core inflation declines to 4.1%: Core inflation eased further to 4.1% (from 4.2% in Dec-12), the lowest for 34 months. Core basket capitalized on easing international commodity prices and stable INR. Primary group contribution increases: The contribution of three major groups, viz, primary (wt ~20%), fuel group (wt ~15%) and manufacturing (wt ~65%) to inflation have undergone further change MoM to 40:18:42 from 38:21:41 in Dec12. Most manufacturing commodities show signs of easing: Manufacturing inflation inched lower MoM for 10 of 17 broad groups (by -0.1% to -2.2%), while it increased (by 0.1% to 0.8%) for the remaining 7 items.

14 February 2013

Easing fuel and manufacturing overwhelm higher food inflation

Core inflation eases to 4.1% on declining commodity prices and stable INR

Source: CSO, CMIE, MOSL

III. High CPI notwithstanding, latest IIP and WPI data to prod a 25bp rate cut in Mar-13
Higher CPI for only two more months: Reflecting the acceleration in food prices that was by the base and seasonal effect, CPI (rural-urban) inflation for Jan-13 accelerated to 10.8% (from 10.6% in Dec-12). The divergence between WPI and CPI is expected to remain for the month of Feb-13 too before converging from Mar-13 onwards. WPI inflation lower and stable: The average WPI inflation in FY13 so far at 7.5% is significantly lower than the average of 9% inflation in FY12 and 9.6% inflation in FY11. Moreover, inflation has been range bound in FY13 so far, within a band of 6.6-8.1%, in sharp contrast to the range of 7.2-10% in FY12 and 8.2-10.9% in FY11. WPI inflation to ease rapidly in 4QFY13: Helped by a favorable base and on account of stable international commodities and INR, WPI inflation is likely to ease at an accelerated pace henceforth. However, some residual inflation risks remain -- i) oil prices are high again, ii) food inflation and CPI are in double digit and would ease only from Mar-13 and iii) headline inflation at 6.6% is still higher than RBI's 5% comfort level. On balance though there are unmistakable signs of definite easing. Expect 25bp rate cut in 19th Mar policy: Recent data releases, both a declining industrial output and easing inflationary pressures, are supportive of further easing of the monetary policy. We expect RBI to cut policy rates by 25bp in March 19, 2013 policy measure.

14 February 2013

Trends in manufacturing inflation

Source: CSO, MOSL

14 February 2013

ECOSCOPE Data Monitor

Macro Economic Indicators Annual I. National Income (Growth %) Nomi na l GDP (USDb) Gros s Domes ti c Product Agri cul ture Foodgra i ns (M Ton) Rai nfa l l (% of l ong peri od a vera ge) Indus try Servi ces II. Inflation (Y-o-Y %) WPI (Annua l Avera ges ) Al l commodi ti es Pri ma ry arti cl es Fuel & power Ma nufactured products CPI-IW III. Fiscal Situtaion (as % of GDP) Tota l recei pts Di rect tax Indi rect ta x Net ta x Tota l expendi ture Pl a n Non-pl a n of whi ch s ubs i di es Fi s ca l defi ci t Revenue defi ci t Combi ned fi s ca l defi ci t (centre + s ta tes ) Publ i c debt IV. Money and Banking (Y-o-Y%) Res erve money Money Suppl y (M3) Depos i ts Bank credi t V. External Sector (i n USDb) Exports Imports Tra de Defi ci t Invi s i bl e Surpl us Current A/c defi ci t Net capi ta l fl ows Forex Res erves (As % of GDP) Exports Imports Tra de Defi ci t Invi s i bl e Surpl us Current A/c defi ci t Externa l debt VI. Financial Markets (Avg %) Ca l l ra te 1-yr AAA corpora te bond Yi el d on 10-yr G-s ec (%) Exchange Ra te (INR/USD) BSE Sens ex return P/E ra ti o (Tral l i ng) Ma rket ca pi ta l i s a ti on (a s % of GDP) Oi l pri ce (Indi an Ba s ket, USD/bbl ) Fi gures i n red a re es ti ma tes FY04 FY05 618 8.1 9.0 213 -20.0 7.3 8.1 721 7.0 0.2 198 5.0 9.8 8.1 FY06 834 9.5 5.1 209 -9.0 9.7 10.9 FY07 FY08 FY09 FY10 FY11 1,710 9.3 7.9 245 -19.0 9.2 9.8 FY12 1,872 6.2 3.6 255 2.0 3.5 8.2 FY13E 1,845 5.0 1.8 250 -7.0 3.1 6.6 FY14E 2,094 6.5 3.5 255 0.0 5.3 7.7

948 1,239 1,226 1,366 9.6 9.3 6.7 8.6 4.2 5.8 0.1 0.8 217 231 234 218 -1.0 -5.0 -1.0 -10.0 12.2 9.7 4.4 9.2 10.1 10.3 10.0 10.5

5.5 4.3 6.4 5.6 3.9 17.2 3.8 5.4 6.8 17.1 4.4 12.7 1.6 4.5 3.6 8.4 86 18.3 16.8 17.6 16.0

6.5 3.7 10.1 6.3 3.8 15.6 4.1 5.3 6.9 15.4 4.1 11.3 1.4 3.9 2.4 7.2 82 12.1 12.3 10.8 26.2

4.4 2.9 9.5 3.1 4.4 14.3 4.5 5.4 7.3 13.7 3.8 9.9 1.3 4.0 2.5 6.5 79 17.2 21.2 23.4 38.0

6.5 9.6 6.5 5.6 6.7 13.6 5.4 5.7 8.2 13.6 4.0 9.6 1.3 3.3 1.9 5.4 75 23.7 21.3 23.8 28.1

4.8 8.3 0.0 4.9 6.2 14.3 6.3 5.6 8.8 14.3 4.1 10.2 1.4 2.5 1.1 4.1 71 31.0 21.4 22.4 22.3

8.0 11.1 11.6 6.1 9.1 15.8 6.0 4.9 7.9 15.8 4.9 10.9 2.3 6.0 4.5 8.5 72 6.4 19.3 19.9 17.5

3.6 12.7 -2.1 1.8 12.4 15.9 5.8 3.8 7.1 15.9 4.7 11.2 2.2 6.5 5.2 9.6 71 17.0 16.9 17.2 16.9

9.6 17.8 12.3 5.7 10.5 15.6 5.8 4.5 7.4 15.6 4.9 10.7 2.3 4.9 3.3 7.4 66 19.1 15.9 15.8 21.4

8.9 9.9 13.6 7.3 8.2 14.8 5.6 4.5 7.2 14.8 4.8 10.0 2.4 5.9 4.4 8.0 66 9.2 13.0 13.4 17.0

7.2 9.7 9.8 5.4 10.0 14.9 5.6 4.8 7.5 14.9 4.7 10.2 2.4 5.4 4.1 7.5 64 8.0 12.5 13.0 16.0

5.5 6.8 6.5 3.5 7.5 14.2 5.6 4.9 7.6 14.2 4.6 9.6 2.0 4.9 3.4 7.0

9.0 14.0 15.0 17.0

66 80 -14 28 14 17 113 11.1 13.3 -2.3 4.6 2.3 17.8 4.6 5.1 5.4 45.9 83.4 16.0 42.3 28.0

85 119 -34 31 -2 28 142 11.8 16.5 -4.7 4.3 -0.3 18.5 4.7 5.5 6.2 44.9 16.1 14.4 52.4 39.2

105 157 -52 42 -10 25 152 12.6 18.8 -6.2 5.0 -1.2 17.3 5.6 6.7 7.1 44.3 73.7 21.6 81.8 55.7

129 191 -62 52 -10 45 199 13.6 20.1 -6.5 5.5 -1.0 18.2

166 258 -91 76 -16 107 310 13.4 20.8 -7.4 6.1 -1.3 18.1

189 309 -120 92 -28 7 252 15.5 25.4 -9.8 7.5 -2.3 20.5 7.1 9.8 7.6 45.9 -37.9 11.8 54.8 82.7

182 301 -118 80 -38 53 279 13.2 21.8 -8.6 5.8 -2.8 18.9 3.2 5.9 7.2 47.4 80.5 21.0 95.5 69.6

251 381 -130 86 -44 57 303 14.5 22.1 -7.6 5.0 -2.6 17.3 4.5 8.1 7.9 45.6 10.9 19.0 89.1 85.1

310 500 -190 112 -78 68 294 16.8 27.0 -10.3 6.0 -4.2 18.7 8.0 9.6 8.4 47.9 -10.5 15.5 70.2 111.9

290 489 -199 110 -89 85 295 15.7 26.5 -10.8 6.0 -4.8 19.0 8.0 9.5 8.0 54.5 11.8 16.2 67.7 109.0

308 504 -196 115 -81 90 305 14.7 24.1 -9.4 5.5 -3.9 19.5 7.2 9.0 7.6 54.0 14.0 59.7 108.0

7.2 6.1 8.5 9.3 7.8 7.9 45.3 40.2 15.9 19.7 18.2 18.8 82.5 103.0 62.4 79.5

14 February 2013

ECOSCOPE Data Monitor

Macro Economic Indicators Quarterly I. National Income (Growth %) Gros s Domes ti c Product Agri cul ture Indus try Servi ces II. External Sector (USDb) Exports Imports Tra de Defi ci t Invi s i bl e Surpl us Current A/c defi ci t Net capi ta l fl ow Forex Res erves Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 7.5 -1.0 9.4 9.5 47 78 -31 19 -12 15 283 11.2 2.9 15.1 11.6 52 84 -32 19 -13 16 279 8.5 3.1 8.3 10.0 55 87 -32 20 -12 17 276 7.6 4.9 5.7 9.1 52 89 -37 20 -17 21 287 8.2 11.0 7.6 7.7 66 97 -31 21 -10 13 296 9.2 7.5 7.0 10.6 77 107 -30 24 -5 8 305 8.0 3.7 5.6 10.2 79 124 -45 28 -17 24 316 6.7 3.1 3.7 8.8 76 120 -43 25 -18 17 311 6.1 2.8 2.5 8.9 71 119 -48 28 -20 8 297 5.3 1.7 1.9 7.9 80 132 -52 30 -22 17 294 5.5 2.9 3.6 6.9 77 119 -42 26 -17 16 290 5.3 1.2 2.8 7.2 70 118 -48 26 -22 24 295

Macro Economic Indicators

Monthly Feb '12 Mar '12 Apr '12 May '12 Jun '12 Jul '12 Aug '12 Sep '12 Oct '12 Nov '12 Dec '12 Jan '13 I. Growth and inflation (Y-o-Y %) IIP 4.3 -2.8 -1.3 2.5 -2.0 -0.1 2.0 -0.7 8.3 -0.8 -0.6 WPI - Al l commodi ti es 7.6 7.7 7.5 7.6 7.6 7.5 8.0 8.1 7.3 7.2 7.2 6.6 Pri ma ry arti cl es 7.1 10.4 9.6 10.3 9.8 10.5 11.2 9.2 7.8 9.4 10.6 10.3 Fuel & power 15.1 12.8 12.1 11.5 12.1 8.4 8.7 12.0 11.7 10.0 9.4 7.1 Ma nufactured products 5.8 5.2 5.3 5.2 5.4 5.9 6.4 6.5 6.0 5.4 5.0 4.8 CPI-IW 7.6 8.7 10.2 10.2 10.1 9.8 10.3 9.1 9.6 9.6 11.2 II. Fiscal situation (as % of budgeted) Tota l recei pts 77.0 99.0 2.1 5.0 12.4 17.7 23.3 36.5 42.1 46.5 60.0 of whi ch ta x revenue 76.9 98.4 2.0 5.3 13.6 18.5 22.7 38.1 43.3 47.9 62.8 Tota l expendi ture 83.9 98.5 5.9 12.8 20.9 29.3 37.9 46.5 52.3 58.2 66.5 Non-pl a n 87.3 99.2 7.6 15.1 23.2 33.3 43.0 50.7 57.2 64.4 71.7 Pl a n 77.0 96.9 2.7 8.6 16.5 21.9 28.4 38.9 43.2 46.7 56.8 Fi s ca l defi ci t 94.6 97.7 13.1 27.6 37.1 51.5 65.7 65.6 71.6 80.4 78.8 Revenue defi ci t 96.6 97.4 15.2 33.8 43.6 61.3 79.2 75.1 81.4 91.2 85.1 III. Money and Banking (Y-o-Y%) Res erve money 8.6 3.7 7.5 6.8 7.8 6.6 6.0 6.9 5.3 2.9 4.6 6.2 Money Suppl y (M3) 13.9 13.2 13.2 13.8 15.7 13.9 14.0 13.5 13.4 13.4 11.2 12.7 Bank Credi t (Y-o-Y %) 15.6 17.0 17.5 17.8 18.7 17.3 17.6 15.7 15.9 17.0 15.1 16.0 Depos i ts (Y-o-Y %) 14.4 13.4 13.1 14.3 16.0 13.9 15.1 13.6 13.4 13.8 11.1 13.1 IV. External Sector Exports (USD b) 25 28 23 25 25 23 22 24 23 22 25 26 Exports (Y-o-Y %) 6.5 -7.1 0.1 -6.7 -6.5 -14.0 -11.7 -10.2 -3.0 -4.2 -1.9 0.8 Imports (USD b) 40 42 37 41 36 41 37 42 45 42 43 46 Imports (Y-o-Y %) 21.1 23.5 1.4 -10.1 -12.5 -1.3 -6.4 5.1 8.9 6.4 6.3 6.1 Tra de Defi ci t (USD b) -15 -14 -14 -16 -11 -18 -16 -18 -22 -19 -18 -20 Forex Res erves (USD b) 296 294 295 286 290 289 290 295 295 295 297 296 Rea l effecti ve excha nge ra te 111.0 108.6 107.6 104.1 102.2 103.9 104.3 104.2 106.8 105.1 104.7 105.0 RBI's net forex i nterventi on -0.3 0.0 -0.3 -0.5 -0.1 -0.8 -0.5 0.0 -0.1 -0.9 0.1 V. Financial Markets (Avg %) Ca l l ra te 8.7 9.1 8.6 8.2 8.1 8.0 7.9 7.9 7.9 7.9 8.0 7.9 Govt borrowi ng (% compl eted) 100.0 100.0 11.4 22.5 33.0 43.7 56.8 64.9 71.8 83.2 89.5 93.7 91-day T-bi l l 9.1 9.0 8.6 8.4 8.3 8.2 8.2 8.1 8.1 8.2 8.2 8.0 Yi el d on 10-yr G-s ec (%) 8.4 8.5 8.7 8.5 8.2 8.3 8.2 8.2 8.2 8.2 8.1 7.9 SBI Bas e ra te 10.0 10.0 10.0 10.0 10.0 10.0 10.0 9.8 9.8 9.8 9.8 9.7 CP - 3 month 11.0 11.6 10.2 10.2 9.7 9.4 9.0 8.8 8.8 9.0 9.0 8.8 CD - 1yr 10.3 10.6 9.8 9.9 9.6 9.3 9.1 8.9 8.6 8.8 8.8 9.0 AAA corpora te - 1yr 9.6 9.8 9.7 9.8 9.7 9.6 9.5 9.2 8.8 8.9 9.0 8.8 Exchange Ra te (INR/USD) 49.2 50.3 51.8 54.5 56.0 55.5 55.6 54.6 53.0 54.8 54.6 54.3 BSE Sens ex return 3.3 -2.0 -0.5 -6.4 7.5 -1.1 1.1 7.6 -1.4 4.5 0.4 2.4 P/E ra ti o (1 Year Forward) 14.9 14.5 14.2 13.2 14.0 13.6 13.6 14.5 14.1 14.6 14.5 14.7 70.1 61.7 57.7 61.2 60.3 60.2 65.1 64.1 67.0 68.6 69.6 Ma rket ca pi ta l i za ti on (a s % of G 71.6 Oi l pri ce (Indi an bas ket, USD/b 117.7 123.4 118.6 108.6 94.8 100.7 110.2 111.9 109.9 108.1 107.1 109.5

14 February 2013

ECOSCOPE Data Monitor

Annual GDP growth (%): Slows to decadal low of 5% Quarterly/Monthly GDP growth (%): Continuous slowdown for 4 quarters

Inflation: Showing signs of moderation

Inflation: WPI inflation below 7%

Fiscal deficit (% to GDP): Consolidation process started

Fiscal trend: Deficits contained in FY13 so far

Monetary indicators: Credit growth constrained by tight money

Monetary indicators: Deposit and credit growth moderates

14 February 2013

ECOSCOPE Data Monitor

Annual External sector: A source of continued worry Quarterly/Monthly External sector: Trade growth moderates, deficit higher

Financial markets: Rates are easing though yield curve flattens further

Financial markets: Interest costs are falling from their peak for the corporate sector

Seesaw ride of the equity market

Markets are fairly valued now

INR, forex reserves: Some stability now

RBI intervened to stabilize INR

14 February 2013

ECOSCOPE Gallery

ECOSCOPE ECOSCOPE ECOSCOPE

29 January 2013 14 January 2013 11 January 2013

January 2013

The Economy Observer

RBI's policy review RBI cuts key policy rates by 25bp CRR too cut by 25bp to 4% FY13 growth estimate lowered by 30bp to 5.5%; Mar-13 inflation estimate lowered by 70bp to 6.8% Monetary stance eased to accord top priority to growth followed by inflation and liquidity Expect calibrated but frontloaded rate cut of 75bp more in CY13 RBI needs to conduct INR500b more of OMO to close the structural liquidity gap & increase effectiveness of the transmission channel

The Economy Observer

The Economy Observer

December 2012 inflation Dec-12 WPI inflation at 7.2%, index static for four months Food and primary inflation rise purely because of base effect Manufacturing inflation drops to 25month low of 5%; core inflation at 4.2% lowest for 33 months Expect WPI inflation to ease significantly in 4QFY13 and near 5.7% by Mar-13 CPI inflation in double digit at 10.6%; divergence between CPI and WPI expected for two more months Expect RBI to cut rates by 50bp.

Nov-12 IIP de-grows Nov-12 IIP de-grows at -0.1%; YTDFY13 at 1.0% IIP remains negative in five out of eight months of FY13 so far; Oct-12 IIP growth of 8.3% seems to be seasonal exuberance All sectors showed either negative or low single-digit growth Mining, Capital and Intermediate Goods down YoY CG moderated to low single-digit from double-digit growth a month back See FY13 IIP at 1.0%; GDP gr at 5.2% Place FY14 first estimate of IIP growth at 5.6%; GDP growth at 6.5%

ECOSCOPE ECOSCOPE ECOSCOPE

18 December 2012 14 December 2012 12 December 2012

December 2012

The Economy Observer

RBI's 3QFY13 policy review

The Economy Observer

The Economy Observer

Oct-12 IIP rebounds to 8.2%; YTDFY13 at 1.2% Capital and intermediate goodsturns around on very low base; consumer sees double digit growthon lagged festive demand Empty middle persists at YTD level, cautious to suggest turnaround of investment cycle See FY13 IIP at 1.4%; GDP growth at to 5.2% With IIP at 8.2% and CPI at 9.9%, RBImay defer rate cut.

October 2012 IIP growth

RBI keeps key policy rates unchanged CRR and SLR too kept unchanged RBI reiterated rate cut in 4QFY13 Indicated revision of growth inflation estimate in Jan-13 Admits government measures helped business sentiment and investment climate Expect 50bp rate cut in Jan-13 along with 25bp cut in CRR Expect continued OMO of INR400b for remaining FY13

November 2012 inflation

Nov-12 WPI inflation drops to 7.2%, lowest in 10 months?Food inflation rises while fuel and manufacturing eases Core inflation declines to 4.5% on easing international prices Expect inflation to remain below7% in 4QFY13 and near 6% byMar-13 RBI may stay put in its rate action on 18th Dec-12 on high CPI and IIP However, we expect RBI to cut CRR by 25bp.

ECOSCOPE ECOSCOPE ECOSCOPE

22 November 2012 15 November 2012 12 November 2012

November 2012

The Economy Observer

FY13-14 GDP growth Growth slowdown from bothsupply and demand side Kharif foodgrain 10% down, rabi sowing lagging behind Industrial stagnation broadbased, services too slows down Demand side GDP growth lower than supply side Consumption, investment, net exports all decelerated After easing in 1QFY13 RBI has hardened its stance Cut FY13 GDP growth to 5.2%, place FY14 at 6.5% 14 February 2013

The Economy Observer

The Economy Observer

IIP plunges to -0.4%; 1HFY13at 0.1% Wide fluctuations across sectors Capital goods shows deepdegrowth; consumer too falls in the-ve territory Projects investments trend support investment slowdown, volume growth of FMCG companies reflect weakness in consumption story Low exports trend shows external drag on domestic economy, fiscal correction points to lowergovt demand Revise IIP growth down to 0.5%from 1.4% earlier; GDP to 5.2% from5.8%

September 2012 IIP growth

October 2012 inflation Oct-12 WPI inflation drops to 7.5% Food (6.6%) and core (5.2%) inflation drops by 124bp and 39bp, respectively The unregulated fuel pricesincluding petrol declined YoY containing impact of hike inprices of regulated fuel Latest IIP and WPI indicates thatRBI's revised forecast of 5.8%growth for FY13 and 7.5% inflationin Mar-13 may have beenoverestimated We expect 50bp cut in policy rates However, if rate cut is deferred expect RBI to resume OMO onceagain

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This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to which this document relates is only available to investment professionals and will be engaged in only with such persons.

For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Nihar Oza Kadambari Balachandran Email: niharoza.sg@motilaloswal.com Email : kadambari.balachandran@motilaloswal.com Contact: (+65) 68189232 Contact: (+65) 68189233 / 65249115 Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 049318

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