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MAIA FINANCIAL SERVICES PVT LTD

MAIA
FINANCIAL ECONOMY 360 DEGREES
SERVICES INDIA: DECEMBER 2009
PVT LTD
JULY 2009

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MAIA FINANCIAL SERVICES PVT LTD

Index:

1) Market View ……………………………………………….3


2) Economic Indicators
a. GDP growth …………………..………………………4
b. Credit growth………………………………………….4
c. Money supply…………………………………………..5
d. Inflation…………………………………………………6
e. Yield curve………………………………………………6
f. Corporate Bond spreads……………………………......7
g. 10 year government bond yield………………………..8
h. Interest rates…………………………………………….9
i. Dollar…………………………………………………….9
j. IIP…………………………………………………………9
k. Core Infrastructure Industry……………………………11
3) Economy Pulse Analysis………………………………………….11

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Market View:

Currently the markets are at 17169 and 5123 as we write this report(As on 3rd dec 2009).
Indian markets have not been able to break their October highs while the global markets
are making new highs. The long term trend remains intact with a bias on upper side.
However the shorter term looks to be uncertain.

Global recovery, domestic growth story, Weakness in the dollar are the key points to drive
the markets to these level.

We feel that on a longer term, gold can still touch newer highs on account of weakening
dollar.

We expect the markets to show resistance this month in clearing the previous top made in
October. A dip of 5% or so can be expected from these levels. However one should note
that it would again act as entry points for long term investors.

A look on various economic indicators supports our view of markets for shorter term remaining
volatile, uncertain with a bias on negative side-Credit off take growth for the week ended 6th Nov
2009 slowed down to as low as 9.8%. However it showed an improvement and the latest figures
indicate the readings to be at 10.8% for the week ended 23 rd Nov. This reading is well below
RBI‟s target growth of 18% and well below that of the previous year growth which was at 23%.

Direct tax collections in the first eight months of the current financial
year increased merely by 3.7% to Rs 1,83,822 crore, against Rs 1,77,251 crore in the
April-November period of 2008-09.

India's exports fell 6.6 per cent in October extending the decline for the 13th month in a row. As
per the foreign trade data, oil imports in October 2009 were valued at $6.6 billion, down 9.3 per
cent from $7.2 billion in the same month last year.

Oil imports during April-October of the current fiscal were valued at $42.8 billion, 39.3 per cent
less than $70.5 billion in April-October 2008.

The November PMI index reading was the weakest since March. The drop was driven largely by
slower growth in both new orders and output. Also The HSBC Purchasing Managers' Index
(PMI), based on a survey of 500 companies, fell to 53 in November from 54.5 in October. A
reading above 50 means activity expanded during the month.

All these readings and indications have to be weighed with the positive data which is released
(say for example GDP numbers this time were quite strong). Weighing the positives and
negatives and using the weight of evidence approach we feel that a correction to the tune of 5-
6% cannot be ruled out.
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Economic Indicators:

GDP:

Source: CSO

Quarterly GDP at factor cost at constant (1999-2000) prices for Q2 of 2009-10 is estimated at
Rs. 8,34,780, as against Rs. 7,73,850 crore in Q2 of 2008-09, showing a growth rate of 7.9 per
cent over the corresponding quarter of previous year.

The economic activities which registered significant growth in Q2 of 2009-10 over Q2 of 2008-
09 are, „mining and quarrying‟ at 9.5 per cent, „manufacturing‟ at 9.2 per cent, „electricity, gas &
water supply‟ at 7.4 per cent, „construction‟ at 6.5 percent, „trade, hotels, transport and
communication‟ at 8.5 per cent, „financing, insurance, real estate and business services‟ at 7.7
per cent, and „community, social and personal services‟ at 12.7 per cent.

The GDP is showing a rosy picture going down the line.

Credit Off take:

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Outstanding as on Variation over


2009 Fortnight Financial year so far Year-on-year
2008-2009 2009-2010 2008 2009
Mar. 31# Nov. 20# Amount % Amount % Amount % Amount % Amount %
(i) Net Bank Credit to Government (a+b) 12,77,199 14,87,583 16,396 1.1 1,49,819 16.7 2,10,385 16.5 1,88,356 21.9 4,38,247 41.8
(a) Reserve Bank 61,580 72,328 21,120 51,703 10,749 80,616 1,33,834
(b) Other Banks 12,15,619 14,15,255 -4,724 -0.3 98,116 9.7 1,99,636 16.4 1,07,740 10.7 3,04,413 27.4
(ii) Bank Credit to Commercial Sector (a+b) 30,13,337 31,37,509 2,678 0.1 2,68,821 10.4 1,24,172 4.1 5,64,408 24.7 2,89,698 10.2
(a) Reserve Bank 13,820 5,396 356 — -274 — -8,424 — -190 — 3,882 —
(b) Other Banks 29,99,517 31,32,112 2,322 0.1 2,69,095 10.4 1,32,596 4.4 5,64,598 24.7 2,85,816 10.0

Source: RBI

The credit offtake has shown a marginal uptick for the second consecutive fortnight ending
November 20. However it still remains way below the target level of 18%. The latest reading
was at 10.8%.

Bank loans have risen by Rs 7,056 crore, for the fortnight ending November 20.

However, deposits grew by 19.04%, or Rs 6,69,427 crore, during the same period. The
outstanding deposits at the end of November 20 stood at Rs 41,85,923 crore as against Rs
35,16,496 crore in the corresponding fortnight in the previous fiscal.

Money Supply:

(Rs. crore)
Outstanding as on Variation over
2009 Fortnight Financial year so far Year-on-year
2008-2009 2009-2010 2008 2009
Mar. 31# Nov. 20# Amount % Amount % Amount % Amount % Amount %
1 2 3 4 5 6 7 8 9 10 11 12 13
M3 47,64,019 51,95,285 22,133 0.4 3,70,988 9.2 4,31,266 9.1 7,08,500 19.3 8,06,414 18.4
Components (i+ii+iii+iv)
(i) Currency with the Public 6,66,364 7,23,575 8,603 1.2 50,576 8.9 57,212 8.6 93,881 17.9 1,04,589 16.9
(ii) Demand Deposits with Banks 5,81,247 5,76,971 -7,751 -1.3 -84,038 -14.5 -4,276 -0.7 11,629 2.4 82,636 16.7
(iii) Time Deposits with Banks 35,10,835 38,90,003 21,360 0.6 4,08,565 14.3 3,79,167 10.8 6,02,834 22.6 6,19,392 18.9
(iv) "Other" Deposits with Reserve Bank 5,573 4,736 -78 -1.6 -4,115 -45.5 -837 -15.0 155 3.2 -203 -4.1

Source: RBI

As can be seen from the above table the Money Supply M3 has grown at a rate of 18.4% year on
year. This is mainly due to rise in currency with the public and time deposits with the bank.
Higher money supply and supply side constraints have contributed to high inflation in CPI terms.

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Inflation:

Source: RBI

It is a matter of worry that the food inflation is around 16%. WPI has stopped its downtrend. We
believe that slowly WPI is also going to rise to a level of 5-6% by next year. If this happens RBI
will surely take action on liquidity front. The first tool would obviously be on monetary front.
This would not augur well for equity markets.

Yield curve

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The yield curve remains normal and is not a cause of worry.

Corporate bond spreads

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As can be seen from the above figure there is substantial decrese in bond spreads compared to
that of March 2009 situation. However there was recently an increment of 10-15 basis points in
corporate bond spreads due to fears of Dubai World.However markets had reacted to this news
but it was only temporary and the fears had slowly subsided.

10 year Government Bond yield

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Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2009 4.62 5.35 5.78 5.83 5.95 6.9 6.78 7.09 7.06 7.18 7.06
2008 6.57 6.78 7.05 7.4 7.32 8.17 9.32 8.81 7.94 6.68 5.8 4.77
2007 7.48 7.75 7.9 7.99 7.84 7.93 7.49 7.53 7.21 7.3 7.29 7.17
2006 6.63 6.95 7 6.9 6.95 7.15 7.51 7.4 7.17 7.23 7.21 7.25
2005 6.6 6.63 6.7 6.88 6.95 6.62 6.54 6.55 6.64 6.72 6.65 6.67

There is a possibility of yields increasing on account of high inflation and probablity that RBI
will take monetary action to control the high inflation.

Interest rates:

With food inflation going to 15-16% it is for sure that some monetary action on liquidity would
definitely be required. Increasing the interest rates would not be that good a news to the equity
markets. However we feel that RBI will start increasing the rates by early next year.

Dollar:

Weakness in the dollar is one of the point driving the markets. We are of the view that may be on
a shorter term dollar will rebound but going down the line dollar will remain weak.

This is because-Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in
short-term debt. The additional deficit spending is estimated to be around $1.5 trillion. This
amount is equal to nearly 30% of entire GDP.

Now the question to ask is -Where will the money come from? The U.S. holds gold, oil, and
foreign currency in reserve. It has 8,133.5 metric tonnes of gold (it is the world's largest holder).
At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve
shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58
billion worth of oil and according to the IMF, the U.S. has $136 billion in foreign currency
reserves. So altogether $500 billion of reserves. Even the short-term foreign debts are far bigger
than this $500 billion.

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So where will the money come from? The printing press. The Federal Reserve has already
monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value
of the dollar and devalues Treasury bonds.

All of this is going to lead to a severe devaluation of the U.S. dollar.

IIP:

Index of Industrial Production (IIP) increased by 9.1 percent in September 2009 vis-à-vis 11.0
percent in August 2009. The reported IIP figure for the month of September was better than
Bloomberg consensus estimate of 7.0 percent. IIP growth rate was 6.0 percent during the same
month last year. On m-o-m basis, IIP increased by 2.6 percent in September 2009, after an
increase of 1.0 percent previous month. IIP for the month of August 2009 was revised to 11.0
percent from 10.4 percent reported earlier. The general IIP index for September 2009 stood at
301.4 against 293.7 for the month of August 2009. The overall growth for the period April-
September FY2009-10 was 6.5 percent compared with 5.0 percent for the corresponding period
of last year.

Manufacturing Sector:

Manufacturing Sector, which accounts for 79.4 percent of IIP, grew by 9.3 percent in September
2009 against 11.0 percent in the month of August 2009. Manufacturing sector grew by 6.2
percent in September last year. On m-o-m basis, manufacturing increased by 3.5 percent in
September 2009, after growing by 0.6 percent in previous month. The overall growth of
Manufacturing Sector for the period of April-September FY2009-10 was 6.3 percent compared
with 5.3 percent for the corresponding period of last year.

India's manufacturing activity expanded for the seventh consecutive month in October 2009 but
at a slightly slower pace as growth in new orders and output slowed.

Mining Sector

Mining Sector, which accounts for 10.4 percent of IIP, grew by 8.6 percent for the month of
September 2009 against 11.0 percent in August 2009. Mining sector grew by 5.8 percent in
September 2008. The overall growth of Mining Sector for period of April-September FY2009-10
was 8.2 percent compared with 3.8 percent for the corresponding period of last year.

Consumer Goods Sector

Consumer Goods Sector grew by 8.2 percent in September 2009 vis-à-vis 10.5 percent in August
2009. For the period of April-September FY2009-10, Consumer Goods Sector registered a
growth of 4.3 percent against 7.6 percent for the corresponding period of last year. Consumer
Durables Sector remained the best performer in September 2009, which grew by 22.2 percent.
On m-o-m basis, the sector increased by 12.9 percent in September 2009 vis-à-vis a decline of
0.6 percent in previous month.
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Consumer Durables and Non Durables Sector:

Consumer Durables registered a 14.7 percent growth in production in September 2008.


Consumer Non-Durables Sector grew by 2.6 percent in September 2009 against 6.4 percent in
the month of August 2009. Consumer Non-Durables Sector registered a growth of 4.8 percent in
September 2008.

Capital Goods Sector

Capital Goods Sector registered a 12.8 percent growth in September 2009 vis-à-vis 8.7 percent
in the month of August 2009. On m-o-m basis, Capital Goods Sector grew by a massive 31.3
percent in September 2009 against an increase of 6.1 percent in previous month. IIP growth for
Capital Goods Sector was 20.8 percent a year ago. For the period of April-September FY2009-
10, Capital Goods Sector registered a growth of 5.3 percent against 10.7 percent for April-
September FY2008-09.

Basic Goods Sector

Basic Goods Sector grew by 6.7 percent for the month of September 2009 compared with 9.6
percent in August 2009. Basic Goods Sector registered a growth of 5.0 percent in September last
year. The overall growth of Basic Goods Sector for period of April-September FY2009-10 was
6.7 percent compared with 3.9 percent for the corresponding period of last year.

Intermediate Goods Sector


Intermediate Goods Sector grew by 10.8 percent in September 2009 against 14.2 percent in
August 2009. Intermediate Goods Sector registered a decline of 2.5 percent in September
2008. The overall growth of Intermediate Goods Sector for the period of April-September
FY2009-10 was 9.5 percent compared with 0.4 percent for the same period of last year.

Core Infrastructure Industry:

India‟s six core infrastructure industries, which have 26.7 percent weight in the IIP, grew 4.0
percent for the month ended September 2009 vis-à-vis 7.8 percent in August 2009. Infrastructure
growth was 4.0 percent in September last year. The index for the six key industries stood at the
level of 246.7 for the month of September 2009 compared with 256.9 in August 2009. Electricity
was the best performer among the six industries, which grew by 7.5 percent in September 2009.
Coal and Cement grew at the rate of 6.5 percent each in September 2009. Refinery Products
grew by 3.4 percent. However, the production of Crude Petroleum and Finished Steel declined
by 0.5 and 0.4 percent respectively. During April- September of FY2009-10, six core industries
registered a growth of 5.0 percent against 3.4 percent during the corresponding period of the
previous year.

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Economy Pulse Analysis:

Economic Indicator Type Comment

Yield Curve Leading Normal.

Corporate Bond Spreads Leading Have recently risen by 10-15


basis points on account of
Dubai crisis.

Inflation Coincident WPI has stopped its down


move, CPI rising to 16%
year on year. Going down the
line, would be bad for equity
markets

Interest rates Coincident Currently stable, however


indicators are signaling that
RBI would sooner or later
start raising the rates

10 year government bond Leading Rising. With the huge


yield government borrowing
programme, jittery effects of
Dubai Crisis and inflation
fears the yields have started
rising. This would be bad for
equity markets

Credit growth Leading Lower at 10.8% vs target of


18%. It is bad for the equity
markets

CCIL Bond Index Leading Falling. As the yields are


rising, bond prices are falling.
This would be bad for the
equity markets going down the
line

GDP Coincident Growth of 7.9% for the 2nd


quarter of the FY10. Better
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than the same quarter of the


previous year and it is a
positive surprise.

IIP Lagging Good. However the


manufacturing segment is
showing signs of weakness.

Core Infrastructure Industries Lagging During April- September of


FY2009-10, six core industries
registered a growth of 5.0
percent against 3.4 percent
during the corresponding
period of the previous year.

Money Supply Leading Higher than the target


growth rate. This is however
due to increased government
spending and the borrowing
programme.

Analyst Name: Avani Mehta Company Name: MAIA Finacial Services Pvt Ltd

Email Id: avani_513@yahoo.co.in Address: C wing, Bsel Tech Park, Opposite

Vashi Station, Vashi, Navi Mumbai.

Contact No: 022 27810674/75/76

Disclaimer: This report is purely for information purpose only. It contains information from sources which we
believe are reliable but we do not guarantee. It also includes analysis and views expressed by our analysts. This
report should not be construed to be investment recommendation/advice. Investors should not solely rely on the
information contained in this report and must make investment decisions based on their own independent inquiry,
investigation and analysis and shall not have any claim on “Maia Financial Services Pvt Ltd”. Efforts are made to
ensure accuracy and to avoid errors and omissions, but errors and omissions may creep in. It is notified that neither
“Maia Financial Services Pvt Ltd” nor its employees will be responsible for any damages or loss of action to any
one, of any kind, in any manner, therefrom. Moreover this report is the property of “Maia Financial Services Pvt

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