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Private Banking Group

INVESTMENT PLAN FOR MR TRIDIP ROY

Section A - Investment Requirements Section B – Recommended Asset Allocation and rationale Section C - A Case for Equities and Our View Section D - Specific Recommendations Section E - Summary

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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Section A – Investment Requirements

Profile of the client – Mr. Tridip Roy wants a plan for investment for 120 Lac. after evaluating the various investment alternatives. Investment Risk Profile – As per the client he is not risk averse and understands the vagaries of the markets. Current Wealth / Investment Surplus We are looking at constructing a portfolio for him which will be invested from Resident Saving account into Mutual Funds, Direct Equity / PMS and other instruments. Current Asset Allocation There are currently other significant holdings; however client has indicated that he is not risk averse. Has a 5 year plus Investment horizon and is ready to take reasonable exposure to Equities. Investment Objectives – as per the client 1. To generate superior returns in a range of 15%- 20%., thereby negating inflation and adding to real wealth creation over 5 years + horizon. 2. The purpose of investments is to create substantial wealth. The objective is to capture the India Story in the portfolio.
3.

To have an aggressive risk profile with regard to the portfolio restructuring since the Investments horizon of three years.

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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Section B – Recommended Asset Allocation and Rationale
Our assessment of your objectives and asset allocation 1. The target returns are achievable with the right asset allocation. 2. We require diversifying into different Asset Management Companies and into funds with different investment philosophies and mitigate the risk of fund manager. 3. We recommend mutual funds as a transparent, liquid, high yielding, professionally managed and tax efficient avenue that will enable you to achieve desired growth in your wealth and at the same time give you control over asset allocation in rapidly changing market dynamics. Also MF vis-a-vis Direct equity would give you a much larger representation of the market. We recommend portfolio of MF rather than equity. Asset Allocation Strategy Recommended: Return Matrix – Moderate Profile
Investment Vehicle Category Expected Annual Post Returns % % Exposure % Amount in Recommen Weighted cr. Tax ded Return (Rs.)

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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Equity Mutual Equity Funds+ Balanced Mutual Equity Funds Debt Debt Funds Debt

20% + 15% 10%

60% 20% 20%

12 3 2

0.72 Cr. 0.24 Cr. 0.24 Cr.

Total Overall Asset Allocation
Debt Equity 30 70

100

17

1.2 Cr.

Note: It is assumed that Equity allocation in Balanced Fund is 65%.

Rationale for a 90% equity allocation – 1. Equity markets will yield returns in line with corporate earnings. The equity markets going forward will not produce 40%- 60% returns as shown in the last two years since markets are no longer grossly undervalued as they were in FY2003 and FY2004. In case of re-rating of the PE’s we expect vertical growth from Equities. 2. We have a long-term investment horizon and therefore, equity exposure can be significant. However we would still keep an upper cap of 60% to the class of equities, as the Indian Stock markets are dependent on FIIs who are very sensitive to the geo-political factors as witnessed in the past. 3. 40% debt exposure would actually give tactical opportunity like 11 Sept ‘02 and 17 May ‘04 which eventually gives more returns without taking increased risk. Also there is requirements for New Ventures. 4. Equity Investments are tax efficient (please see table below) Nature of Return Short Term Capital Gains Long Term Capital Gains Dividends Equity Funds / Shares 10% + 10% Surcharge + 2% Cess Effective Rate – 11.22% NIL NIL, (Dividend charged) Distribution Tax

Establishing an appropriate asset mix is a dynamic process, and it plays a key role in determining your portfolio's overall risk and return.

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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There are a few different strategies of establishing asset allocations, and here we outline some of them and examine their basic Management approaches. Strategic Asset Allocation strategic asset allocation is a method that establishes and adheres to what is a 'base policy mix'. This is a proportional combination of assets based on expected rates of return for each asset class. For example, if equity is expected to give a return of 15% per year and debt is 6% per year, a mix of 50% equity and 50% debt would be expected to return 10.5% per year. Constant Weight-age Asset Allocation Strategic asset allocation generally implies a buy-and-hold strategy, even as the shift in the values of assets cause a drift from the initially established policy mix. For this reason, you may choose to adopt a constant-weighting approach to asset allocation. With this approach, you continually rebalance your portfolio. For example, if one asset were declining in value, you would purchase more of that asset, and if that asset value should increase, you would sell it. There are no hard-and-fast rules for the timing of portfolio rebalancing under strategic or constant-weighting asset allocation. However, a common rule of thumb is that the portfolio should be rebalanced to its original mix when any given asset class moves more than 5% from its original value. Tactical Asset Allocation Over the long run, a strategic asset allocation strategy may seem relatively rigid. Therefore, you may find it necessary to occasionally engage in short-term, tactical deviations from the mix in order to capitalize on unusual or exceptional investment opportunities. This flexibility allows you to participate in economic conditions that are more favorable for one asset class than for others. Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short-term profits are achieved. This strategy demands some discipline, as you must first be able to recognize when short-term opportunities have run their course, and then rebalance the portfolio to the long-term asset position.

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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Currently we have recommended the strategic asset allocation. This would be rebalanced from time to time based on the returns generated from each asset class. A portion of the portfolio will be used as and when opportunity comes for the Tactical allocation.

Section C – A Case for Equities and Our View
The Indian Equity Markets The Indian economy is performing extremely well and the Indian GDP is expected to grow by over 7.5% in the current year. Besides the domestic growth opportunities there are excellent avenues for growth, which are emerging in the outsourcing areas. Currently the market capitalization of the Indian markets stands at Rs 18,00,00,000 Cr. against a GDP of Rs 31,00,00,000 Cr. Over the next one year the Indian GDP will grow at a nominal level of around 13% taking the GDP to Rs 35,00,00,000 Cr. At that GDP the market capitalization /GDP ratio in India will come down to nearly 50%. In our view this should be at a level of more like 60% and increase further with time. This gives a potential upside of nearly 15% to the markets over the next 12-15 months. Given the secular growth phase that Indian economy is passing through, it is easier to estimate that after five years, assuming a normal profit growth rate of 15% p.a. and reasonable PE’s, Sensex should be anywhere between 12000 (at 11 PE) to 16000 (at 15 PE). The equity markets over long periods of time are slaves of earnings and of growth in earnings. In fact over long periods of time returns from equities must track corporate profit growth rates for very simple reasons: a) If markets continue to lag profit growth rates, the P/E’s will keep on falling and ultimately start-approaching zero, which is not reasonable. b) On the other hand, if equity returns continue to outpace profit growth rates, P/E’s will keep on rising and move towards very high levels and ultimately start approaching infinity which is again not reasonable. On the other hand, equities over short periods are simply volatile!

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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Therefore, one can say with a higher degree of confidence what is likely to happen to equities over the next 5 years than one can say what is likely to happen over the short periods The medium to long-term outlook of the markets There are two components to assessing the future prospects of the markets viz. a) Outlook for economic and corporate profit growth rates and b) The PE multiples of the markets Lets look at these one by one. Outlook for profit growth rates The long-term sustainable profit growth rates of Indian corporate on an average are nearly equal to the growth rates of manufacturing and service sectors plus inflation. Assuming around 8% real growth rates of service and manufacturing sectors and 4-8% inflation, the nominal growth rates work out to 12-16% p.a. However, over the last 3-5 years, profits have grown at higher growth rates of nearly 25% CAGR. Significant cost savings drove this mainly in the manufacturing sector, significant de-leveraging and lower interest rates resulting in a sharp fall in interest expenses, nearly flat depreciation expenses as capital spending was minimal in the last 5 years (after significant capacity creation in mid and late 90’s) and a cyclical upturn in commodity prices notably steel, aluminum and oil as also a sharp rise in volumes of commercial vehicles, etc. Looking forward over the next 2-5 years the expectations of growth rates range between 12-18% CAGR. These are lower than past growth rates because the incremental cost savings are relatively small, capital spending is coming back as new capacity needs to be created which will result in a gradual but steady rise in fixed charges, interest rates have bottomed out and there are cost pressures from higher prices of basic materials as also wage inflation. Finally, an appreciating currency is also not good for margins on balance. A cyclical downturn in commodity prices cannot be ruled out as well. In view of the above, over a 3-year period, profits should therefore grow by nearly 50% and should nearly double over the next 5 years (at 15% CAGR).
Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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This slowdown in profit growth rates is widely anticipated and is built into analysts’ forecasts and is therefore not a cause for concern. However, we must take into consideration the expectation of slowdown in profit growth rates in the future while assessing the prospects of the markets. Outlook for PE multiples There is nothing like a “fair” PE multiple (if there was one, then shares would not fluctuate because historic earnings in any case are known; even 1 year forward earnings are known with reasonable accuracy). However, it is possible to take a view on PE multiples whether they are cheap or expensive. Let us look at the different ways to assess PE multiples: a) History is a guide (even though not always a reliable one). The average PE of Indian markets over last 15 years is around 18 and for long periods our markets have traded between 15-25 multiples. The present PE is nearly 16 times based on March 2006 estimated earnings. Thus at present level of index, the PE’s are not unreasonable. b) According nearly equal reasonable. Considering around 15%, a to a thumb rule used by the financial community, a PE to sustainable earning growth rate is considered the fact that earnings growth in foreseeable future is 15 PE is not unreasonable for the markets.

c) Our PE’s are also in line (actually somewhat higher) with the PE’s of the region. However, there is a case to be made that Indian PE multiples should actually be higher than PE’s of the region. This is because of higher sustainable economic growth rate of our economy, on account of size and diversified nature of our economy, on account of low leverage in the economy and finally very low dependence on exports, etc. Thus, even from this perspective the PE’s are not unreasonable. d) There is yet another way of looking at PE multiples. A 7% yield on 10-yr G- Sec translates to a nearly 14 PE for a risk free asset with zero growth. Crudely assuming that the growth offsets the volatility of growth rates in equities, a 15 PE is very close to a bond PE and again is therefore, reasonable.

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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In view of the above, in our opinion, it is reasonable to conclude, that the present PE multiples of our markets though are not cheap as they were in the last 2-3 years, but they are neither unreasonable or expensive. There is also an issue of frame of reference here. For those of us who are comparing the PE’s of the last 2-3 years, the present PE’s appear to be high but if we were to compare the same with the last 10 years PE’s, then present PE’s appear to be reasonable. Prospects of markets Economic growth rates (particularly for industry and services) and profit growth rates in India are quite stable and there do not appear to be many significant risks to the same. The uncertainty about PE multiples is however more. An 11-16 PE band on a 1-year forward basis is fairly reasonable band for the markets to trade in without the markets being materially under-valued or over-valued. Assuming different PE multiples for the markets 1 year, 3 years and 5 years from today and assuming 15% CAGR in profits, it is fairly easy to work out the prospects for the index. This is summarized in the table below.

Projected Sensex @ 11 PE @ 14 PE @ 15 PE @ 16 PE @ 18 PE

March '06 6513 8296 8917 9537 10728

March '08 8684 11010 11786 12561 14130

March '10 11476 14577 15585 16392 18450

The above tables appear to have an upward bias for the Sensex even at lower PE multiples. This is so because, earnings are expected to grow in a growing economy and over time, the growth offsets fall in PE multiples even if there is one. In fact, as the time horizon becomes
Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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longer, impact of growth will completely outshine the impact of PE multiples on returns. This is in fact the good thing about equities in a growth environment, and this also reduces the risk of equities over time (the big assumption only being that growth sustains). Conclusion and suggested investment strategy for these markets The markets are thus presently neither under-valued nor over-valued. Returns are likely to track the earnings growth rates over the medium to long term. Moreover as highlighted earlier, there is always uncertainty about timing of the returns. In view of the above, a) There is a need to have moderate return expectations from markets for the future. Returns of the last 3 years are unlikely to be sustained. b) As PE’s are reasonable and will come down only over time as profits grow, there is a need to increase the time horizon of equity investments. Three years or longer is a reasonable time frame in my opinion. c) As the PE’s are reasonable and there are always risks linked to events either locally or internationally, equity investors should be prepared for volatility, particularly over shorter time frames. d) The risks to earnings are not as much across the board and are more sectoral in nature e.g. a cyclical downturn in commodities is negative for commodity stocks a sharp hardening of interest rates is more negative for smaller sized companies, capital spending etc an appreciating currency is negative for exporters (including IT companies) along with commodities, etc. In such an environment, effective diversification is of greater value. Diversified funds (as opposed to sector / thematic funds) thus carry lower risk.
Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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In summary, what is being said above is that investors must assess what is that portion of their wealth which is not required for 3 years or more and on which one can tolerate volatility both financially and emotionally. This is the right proportion of one’s wealth to be invested in equities. Finally, there is merit in equity investments even today because equities are likely to yield higher returns than most other asset classes even though the gap in future returns may be less compared to the past.

We can use the following strategies to enter the market:
1. Invest into Equity Funds through SIPs/ STPs: This can be done on a weekly basis over 2-3 months. It will give the benefit of 'Rupee-Cost averaging’; where are cost for the full investment would be average cost of all the entries done over the period. 2. Balanced Fund, which dynamically manages the Asset Allocation: Asset allocation is the key to a sound portfolio especially during volatile times. Recently, we did a study on portfolio rebalancing and based on this study our research desk recommends taking exposure to a balanced fund like HDFC Prudence Fund. 3. New Fund Offerings: The other strategy could be to invest in new fund offering, which has flexibility to invest the cash into the stocks within a period of 3 months. This helps the fund manager to utilize a correction and pick stocks at lows. In the stock markets different segments of the market be it mid caps or large caps will move up and down in cycles. As such, we do not believe that investors should be unduly concerned about the correction in the mid cap segment which has been happening over the last few days and may last a few days more. Such corrections are part of the market and are very healthy for the market because if stocks go up continuously without correcting the markets tend to become dangerous. As they create artificial bubble. Large caps that were significant under performers for months have now started to perform. This is very positive for the overall stock markets as most of the money of a large number of investors (be it domestic or institutional) lies in large cap stocks. This will create lot of
Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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liquidity in the system, which will be positive for the long run performance of the stock markets. Corporate sector performance is expected to continue to be strong even in the current financial year, which will give support to the valuations in the markets. However, we may not see universal movement in Industries and stock selection would be key. We believe that the growth in the economy will be lead primarily by three themes. Domestic Consumption We believe that the demographic profile of the country is shifting towards youth - specifically those born in 1980s & 90s, they would be those people who have just started working or would start in near future, single or just married with high disposable incomes and with a high lifestyle aspiration. Due to this shift, consumption of high value products such as Air Conditioners, washing machines, computers, cars, mobile telephones, etc., is expected to increase. All this translates into a surge in demand for products of companies that are catering to this segment of our population. Since this is happening on the back of attitudinal changes and lifestyles aspirations, it's likely to be sustainable. Infrastructure India has witnessed high economic growth in last few years but lack of quality infrastructure is acting as a speed breaker for sustaining the same. For instance, the fund states that in India there are 710 phone connections per 10,000 people as compared to 4,238 in China and 11,643 in US. Further 264,000 aircraft take-off in India, as compared 946,000 in China and 77,89,000 in the US. But with both Central and State governments running into deficits, private participation is actively encouraged. Some of the steps that the government has taken so far to woo investors in the infrastructure sector include: • • • Increase in FDI in road, port, telecom, aviation and other infrastructure sectors. Establishment of independent regulators like TRAI, Electricity Regulation Commissions. Dedicated funding for infrastructure spending like fuel cess for road construction and education cess for education.

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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• • • • •

Abolishment of license requirements for power generation. Considering the above steps, the future of infrastructure sector looks bright. Some of the indicators are as follows: In the Power sector, the government aims to add 1,00,000 MW of generation capacity by 2012 Greater private and public sector participation is expected to take place in the telecom sector. Various oil pipeline projects are slated to materialize.

Service Some of the reasons why the Services industries sector is an attractive sector. These are as below: • Services have been growing at a faster rate than Industry and Agriculture in India and in other large developed countries. In 2005, the Services sector is expected to contribute around 50% of India’s GDP share. • Infrastructure spending is on the rise. The government has taken various steps like public-private participation, building adequate regulatory framework and encourages foreign investors. This, itself, is favorable for support services offered by the Services sector. • Services growth rides on India’s globally competitive advantage due to a large pool of low cost and trained workforce. The Services sector is well diversified and comprises of many different sub sectors such as Auto components, Banking and Financial Services, Construction, Healthcare services, Tourism, Media and Entertainment, Trade and Retail, IT and IT enabled services, Telecom, Transportation, etc. Equity exposure in the markets today can be taken through: 1. Direct Equity 2. Equity Mutual Funds 3. Equity Unit Linked Insurance/Pension Plans.
Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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DEBT MUTUAL FUNDS Overall the yield in the bond markets remained volatile ahead of the monetary policy. The RBI announced the monetary policy on Oct 25th. The RBI hiked the Repo and reverse repo rates by 25bps. However the bank rates were left unchanged. The yield of the benchmark 10-yr security touched a high of 7.18% on expectation of hike in reverse repo rate but fell after the RBI announced the monetary policy. We recommend investors to invest into short term income funds while investors having an investment horizon of less than 3 months can consider Liquid Fund and Floating Rate Fund Short term plan. In view of the above scenario we advise to consider allocation between Fixed Maturity Plan and Liquid Fund. If Liquidity is not a issue than ULIP Plans could also be considered.

Fixed Maturity Plan (FMP’s) - Fixed Maturity Plans invests in instrument whose maturity is in line with duration of the plan, and hence FMP eliminates interest rate risk as investment is held to maturity. FMP is a short-term debt fund with fixed date of Maturity. Current Yield is around 8%. DEBT ALLOCATION Category Liquid Plan/ Arbitage Fund Allocation 10% 10% Amount in Cr. 0.12 0.12

Among the Floating Rate we would recommend you to invest in the following ones. 1. DSP ML Liquidity Fund 2. HDFC Cash Management Fund PAST PERFORMANCE

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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Fund Name 1 Months DSP ML 6.2% Liquidity Plan HDFC Cash 6.1% Management Fund

3 Months 5.85% 5.9%

6 Months 5.8% 5.76%

Section E – Specific Recommendations
We recommend the following plan, 0.50Cr in Equity & 0.20 Cr. in Balanced Funds based on the current theme of the Indian Equity Markets. We have categorized the following Industries in the three broad themes as given below. We have found the % exposure of the funds that we have recommended in these three themes to be substantial & hence they are capable of capturing the value unlocking in the given three themes.
Consumerism Telecom, Textiles, Personal Care, Food, Consumer Durables, Auto Services Banking & Finance, Computer Hardware & Software, Hotels Infrastructure Transport, Steel, Shipping, Power, Paints, Housing, Engg, Cement

The following Four (5) funds would capture the growth stories in the respective segments over the next 3-5 years. We have also given the % exposure of these funds in the above three themes.
Sr. No. Name of the Fund/ Scheme 1 Reliance Vision Fund 2 Sundaram Select Midcap 3 HDFC Equity Fund 4 Reliance Growth Fund Amount in Rs. 1500000 1500000 1500000 1500000 Type Equity Equity Equity Equity % Allocation 49.50% 43.70% 60.30% 40 %

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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5 Prudential ICICI Dynamic

1200000 Equity 7200000

44.20%

Balanced Mutual Fund HDFC Prudence Fund:
HDFC Prudence Fund is one of the best-balanced funds. The fund invests around 6065% in equities and the rest in debt and money market instruments. The fund has returned around 58% in the past year, as against its benchmark return of 28%. The fund follows a portfolio rebalancing strategy of booking profits on its equity investments on a regular basis, thereby reducing the risk level and sticking to its asset allocation. Under equities, the fund invests in a mix of large and mid cap stocks. Under debt, the fund follows a passive investment strategy. Sr. No. Name of the Fund/ Scheme 1 HDFC Prudence Fund Amount in Rs. 2400000 Type Balanced

We also believe that the portfolio must have a structured risk policy which suits the profile. Our suggestion on the risk policy on the portfolio would be : 1. Risk Monitoring of the portfolio is very essential in the equity allocation. We believe a stop loss could be decided on mutually and can be exercised in a declining market. 2. Although, we believe that there should be risk monitoring in the form of a stop loss for the equity portfolio (in accordance to the risk appetite), we feel that it can be reviewed by the investment committee if the stop loss is hit due to unexpected events like the Intra-year rise in inflation, Deficient Monsoon fall, Volatility in Oil Prices & Political instability. Thus in our risk policy we separate the risk due to a wrong investment decision which must be rectified and the risk due to an event which may just be short term impact rather than a long term effect 3. Tracking of existing investments vis-a-vis the benchmark should be done on a regular basis for the mutual funds 4. We recommend review of the portfolio once every three months for any rebalancing that is needed through a detailed review of portfolio balancing needs, the market view and the tactical allocation at that point of time. 5. We also believe that return expectation on portfolio must be defined and expectations reviewed when profit objectives are met. Thus we recommend some sort of book profit levels in line with your return expectations (adjusted for the
Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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market outlook). These return expectations must be aligned to the market trend. Future cash flows would be integrated into the portfolio and rebalancing done whenever these flows are seen.

Section F - Summary
1. Restructuring the portfolio, with more diversification among the AMC and the funds with different investment objectives. 2. Equity, Debt and Balanced Mutual Funds. The asset allocation is 70% to equities and rest to debt. 4. Tax efficiency and administrative simplicity have been kept in mind.
3. 5.

The approach is one of long term investing (60 months and above).

6. Periodic profit booking and asset rebalancing will be recommended.

Thanks and Regards, Samrat Bose

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.

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HDFC Bank Private Banking No 9 Eterna, HDFC Bank Kormangla , Bangalore - 560095 Phone - +91 9341947849

Disclaimer: We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any customer as it may deem fit and will not be liable for any such action.