Strategy

STRATEGY INSIGHT December 22, 2016

The peculiar distribution of equity Exhibit A: Median equity returns for

BSE100 are the highest over the 7

returns in India and 10 yr horizon

15% 14%

Median BSE100 returns

Using data on the BSE100 from April 1991 – December 2016, we find that 11%
10%
median equity returns in India over a rolling 10 and 7 year investment 10% 9% 9%
horizons exceed returns from all other time horizons. Furthermore, these

(in %)
two investment horizons offer the highest risk adjusted returns and the
5%
highest probability of beating the risk free return of 8%. The one year
investment horizon on the other hand offers middling returns (at 9.9%)
with a high degree of volatility. In light of these findings, Ambit’s Coffee 0%
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Can Portfolio, which invests in outstanding franchises for a decadal
Investment horizon
period, becomes even more attractive.
Source: Bloomberg, Ambit Capital Research. Period
The 1 year investment horizon offers the worst risk adjusted returns under consideration is from April 1991 – December
Using data for the last 24 years, we find that returns for the BSE100 are the 2016. The investment horizons are calculated on a
rolling basis.
highest over a 10 and 7 year investment horizon (in descending order of returns).
The 3 & 5 year horizons give the lowest returns (see exhibit A in the right hand Exhibit B: Volatility of returns is the
margin) while the 1 year investment horizon gives middling returns. However, highest over the 1 year horizon
the volatility of returns (using the coefficient of variation) for the BSE100 is the 3

Coefficient of variation
highest for the 1 year investment horizon at a staggering 4.4x the risk involved 2.2

of BSE100 returns
over a 10 year horizon (see exhibit B). Combining the risk and return perspective 2
(using the Sharpe ratio) suggests that the 1 and 3 year investment horizons offer 1.3
1.0
the worst risk adjusted returns (see exhibit C). 1 0.7
0.5
The 10 year investment horizon offers the highest probability of beating
the risk free rate 0
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
The probability of generating returns in excess of 8% is the greatest over the 10 Investment horizon
year horizon. The 1 year horizon, on the other hand, is doubly damaging – not
Source: Bloomberg, Ambit Capital Research. Note:
only is the probability of the beating the risk free rate relatively low (54%), the Period under consideration is from April 1991 –
probability of generating equity returns of -7% or less stands at an eye-watering December 2016.
24% over a 1 year horizon. Once the investment horizon increases to 7 years or
Exhibit C: The 10 year horizon
more, the probability of beating the risk free rate picks up meaningfully with the dominates all other time periods on a
10 year horizon offering the highest probability (see exhibits below). risk adjusted returns basis
Investment Implications 1.00
Given that equity returns in India are not normally distributed and given that the
0.80 0.69
probability of equity returns being higher than the risk free rate is the highest
Sharpe Ratio

over the 7 and 10 year time horizon, our Coffee Can Portfolio which focuses on 0.60
0.37
investing for a decade in high quality franchises makes eminent sense (click here 0.40
0.22 0.22 0.23
our note dated 17 Nov 2016). Every single Coffee Can Portfolio created in the 0.20
last 16 years has beaten the risk free rate and the BSE100.
0.00
The BSE100’s returns over a 10 year investment horizon are most likely to beat 1Yr 3 Yr 5 Yr 7 Yr 10 Yr
the risk free rate Investment horizon

Avg : 13% Source: Bloomberg, Ambit Capital Research. Note:

10 Yr investment horizon Period under consideration is from April 1991 –
-1SD December 2016
No. of observations

+1SD 1 Yr investment horizon

120

80 -1SD Avg :17% +1SD 10 Yr horizon has a fat

right tail
Research Analysts
40 1 Yr horizon has a
fat left tail Ritika Mankar Mukherjee, CFA
+91 22 3043 3175
0
-50% 0% 50% 100% 150% ritika.mankar@ambit.co
BSE100 returns (in %)
Aditi Singh
Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December 2016. Avg
refers to the average. The red dotted lines represent the average, average +1standard deviation, and average -1standard +91 22 3043 3284
deviation for the 1 year investment horizon and the black dotted lines represent the average, average +1standard aditi.singh@ambit.co
deviation, and average -1standard deviation for the 10 year investment horizon.
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
 Strategy

Section 1: Equity returns in India are

anything but ‘normal’
“Distributions of daily and monthly stock returns are rather symmetric about their
means, but the tails are fatter (i.e. there are more outliers) than would be expected
with normal distribution. The message for investors is: expect extreme returns; negative
as well as positive.” Conventional asset allocation
– Eugene Fama and Kenneth French, Dimensional frameworks assume that equity
Fund Advisor’s website returns are normally distributed
Conventional asset allocation frameworks typically make a range of assumptions
about the “normality” of asset returns. An asset allocation based on the normal
distribution typically understates the frequency and magnitude of negative events and
hence the impact on total returns.
In this note, we demonstrate how the notion of normality of equity returns does not
hold true in the Indian context – across 1,3,5, 7, and 10 year investment horizons -
and how the 7 year and longer investment horizon is the best return horizon for an
investor looking to beat the risk free rate with the highest probability.
An analysis of BSE100 returns data in India from April 1991 – December 2016
suggests that contrary to popular belief, equity returns in India are nowhere close to
being normally distributed. In specific, this analysis yields three critical findings
namely that:
 The 10 year and 7 year investment horizon offer not just the highest median
returns (14% and 11% respectively) but also the highest risk adjusted returns (with
a Sharpe ratio of 0.69 and 0.37 respectively) along with the most elevated Equity returns in India are nowhere
probabilities of beating the risk free return of 8% (76% and 66% respectively). close to being normally distributed
 The 1 year investment horizon offers middling returns with the median at
9.9%. However, the 1 year horizon entails disproportionately high risk (4.4x the
risk involved over a 10 year investment horizon). Furthermore, the returns are far
from being normally distributed and have a fat left tail.
 The 3 year and 5 year investment horizon entail the lowest probabilities of
beating the risk free return of 8% (with the probability at 51% and 54%
respectively). Furthermore, the median returns in this time frame are the lowest
(at 9% for both) as compared to the 10 year and 7 year horizon that delivers a
return of 14.1% and 11% respectively.
In the section below we provide details with respect to each of these findings.
Insight#1: The returns perspective: 10 year and 7 year investment horizon
offers the highest returns
An examination of equity returns in India suggests that median returns for the The 10 and 7 year investment
BSE100 are the highest for a 10 and 7 year investment horizon (in descending order horizon offer the highest returns
of returns). In contrast, the return outcomes over 3 and 5 years are the lowest (see
exhibit below).
Exhibit 1: Equity returns for the BSE100 are the highest over a 10 year and 7 year
investment horizon

20% Median Average

BSE100 returns (in %)

17.2%
14.1%
15% 12.5% 12.6%
11.6% 11.9%
11.0%
9.9%
10% 9.0% 9.1%

5%

0%
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Investment horizon
Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016. The investment horizons are calculated on a rolling basis. For instance the median 1 year return is the
median returns generated by considering 297 one year periods including Apr 91 - Mar 92, Apr 92 - Mar 93 and
so on.

December 22, 2016 Ambit Capital Pvt. Ltd. Page 2

 Strategy

It is worth noting that ‘median returns’ is a superior measure of central tendency as

compared to ‘average returns’ since the median is defined to adjust for
outliers/extreme values in the data.
Additionally,
 The median return for the 1 year investment horizon is middling at 9.9%.
However, the 1 year investment horizon has the widest range of equity returns
which ranges from a peak of 230% delivered in April 1991 – March 1992 to a
trough of -57% (delivered over January 2008 – December 2008).
 The range of equity returns narrows over the 3 year investment horizon from a
The range of equity returns
peak of 61% delivered in May 2003 – April 2006 to the trough of -22% in March
narrows as the investment horizon
2000 – February 2003. The median return for this investment horizon is 9%.
widens
 The range narrows considerably over the 5 year investment horizon. The early
noughties saw some of the highest returns with the peak of 46.9% recorded in
the period spanning November 2002 – October 2007 and the trough of -5.5%
recorded over March 1994 – February 1999. The median return for this
investment horizon is 9.1%.
 The range of returns narrows further in the 7 year rolling period. The May 2003 –
April 2010 periods saw the highest returns being delivered at 30% and the trough
of -6.1% recorded over October 1994 – September 2001. The median return is
the second highest for this investment horizon at 11%.
 The 10 year rolling period offers the tightest range of returns with only one
instance of negative returns (April 1992 – March 2002 at -1%). The peak return
of 21% was earned in the periods spanning January 1998 – December 2007,
February 1998 – January 2008, and May 2003 – April 2013. This is the period
with the highest median return at 14%.

Insight#2: The risk perspective: The 1 year investment horizon is the riskiest
with risk levels being 4.4x that of the 10 year horizon
An examination of the volatility of equity returns in India (using the coefficient of
The 1 year investment horizon has
variation) suggests that the volatility of returns for the BSE100 is the lowest for the 10
the highest volatility of returns
year and 7 year investment horizon. It is worth noting that coefficient of variation is a while the 10 year has the least
superior measure of risk as compared to standard deviation as it is size agnostic and
standardizes the risk so as to facilitate comparisons across time horizons.
The 1 year time horizon appears be a particularly high risk bet as it tends to deliver
middling median returns (third highest at 10% i.e. 0.7 times the median returns
earned over a 10 year horizon) but entails risk (as measured by the coefficient of
variation) which is 4.4x the risk involved over a 10 year holding period (see exhibit
below).
Exhibit 2: The 1 year investment horizon is the riskiest with risk levels being 4.4x that
of the 10 year horizon

Standard deviation Coefficient of variation

coefficient of variation of
Standard deviation and

2.5 2.2
BSE100 returns

2.0

1.5 1.3
1.0
1.0 0.7
0.38 0.5
0.5 0.16 0.11 0.08 0.06
0.0
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Investment horizon

Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016.

December 22, 2016 Ambit Capital Pvt. Ltd. Page 3

 Strategy

Additionally,

 The 10 year investment horizon clearly dominates all other investment horizons
from the perspective of risk.
 The 3 year, 5 year, and 7 year investment horizon entail risk which is 2.8x, 2.2x
and 1.5x times more than that compared to a 10 year period where risk is
measure using the coefficient of variation.

Insight#3: The risk adjusted return perspective: The 10 year investment

horizon offer the highest Sharpe/Sortino Ratio
In a bid to combine the risk and return perspective we use the Sharpe and Sortino
ratio which is defined as the average return earned in excess of the risk free rate per The 10 year investment horizon is
unit of volatility. The measure of risk is total volatility or standard deviation for Sharpe the best placed on a risk adjusted
ratio and downside volatility for Sortino. perspective while the 1 and 3 year
So theoretically speaking, a portfolio invested in zero risk securities such as investment horizons are the worst
Government bonds should have a Sharpe/Sortino ratio of exactly zero. Thus the placed
greater the Sharpe/Sortino ratio, the more attractive the investment is likely to be
from a total and downside risk-adjusted return perspective respectively.
Quantifying the risk free rate in India
We define the risk free rate for India as the median 10 year government bond yield
which works out to be ~8% across time horizons. Furthermore, the risk free rate
displays substantially low volatility in India (but not zero volatility) as measured by the
coefficient of variation (exhibits below).
Exhibit 3: India’s risk free rate as measured by the median 10 year government yield
amounts to 8%
Standard Coefficient of
Investment Horizon Mean Median
Deviation Variation
1 year 9.1% 8.3% 0.02 0.23
3 year 9.0% 8.2% 0.02 0.22
5 year 8.9% 8.2% 0.02 0.20
7 year 8.8% 8.0% 0.02 0.19
10 year 8.7% 8.1% 0.01 0.15
Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016. Note: SBI 1 year deposit rate is used from 1991-1998 to proxy for the 10 year government bond yield as
data is not available for that period.

The risk free rate in India has been lower than the equity returns rate period (see
exhibit below).
Exhibit 4: The median risk free rate is lower than equity Exhibit 5: Although the volatility of the risk free rate is not
returns across all time horizons zero, it is fairly low

15% 2.5
2.2
Median Returns (in %)

Coefficient of variation

13% 2.0

11% 1.5 1.3

1.0
9% 1.0 0.7
0.5
7% 0.5 0.23
0.22 0.20 0.19 0.15
5% 0.0
1Yr 3 Yr 5 Yr 7 Yr 10 Yr 1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Investment horizon
BSE100 median returns
Median 10 Yr govt. bond yields BSE100 10 Yr government bond yield

Source: Bloomberg, Ambit Capital Research. Note: Period under consideration Source: Bloomberg, Ambit Capital Research. Note: Period under
is from April 1991 – December 2016. consideration is from April 1991 – December 2016.

December 22, 2016 Ambit Capital Pvt. Ltd. Page 4

 Strategy

Given that the risk free rate tends to be constant across various investment horizons,
the equity risk premium i.e. or the excess returns over and above the risk free rate
tends to be the highest for the 10 year investment horizon followed by the 7 year
and 1 year horizons (see exhibit below).
Exhibit 6: The equity risk premium is the highest for the 1 year investment horizon
followed by 10 and 7 year horizons

8%
The equity risk premium tends to
6% be the highest for the 10 year
Equity risk premia

6%
investment horizon

4% 3%

2% 2%
1% 1%

0%
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Investment horizon
Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016.

The risk adjusted return perspective: The 10 year investment horizon clearly
dominates all other time periods
An examination of the Sharpe ratio of equity returns in India suggests that the 10
year investment horizon dominates all other time periods with a material lead over
the 7,5,3, and 1 year investment horizons (in descending order) (see exhibit below).
Exhibit 7: The 10 year investment horizon dominates all other time periods on a total
risk adjusted return basis

1.00

0.80 0.69
Sharpe Ratio

0.60
0.37
0.40
0.22 0.22 0.23
0.20

0.00
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Investment horizon

Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016.
Additionally,
 The 1 year and 3 year investment horizon stand out as the period offering the
worst Sharpe ratio or total risk adjusted return.
 The 5 year, 7 year and 10 year investment horizon entail a Sharpe ratio which is
1.1x, 1.7x and 3.2x times more respectively than that compared to a 1 year
period.
Since the Sharpe Ratio has been criticized for not capturing the risk adjusted returns
appropriately when the underlying distribution is non-normal, we also analyze the
“Sortino Ratio” for the different time horizons.
The “Sortino Ratio” adjusts for risk by only factoring in the downside or negative
volatility rather than the total volatility used in calculating the Sharpe Ratio. The “Sortino Ratio” gives the downward
Sortino Ratio takes the upside volatility out of consideration and uses only the risk adjusted return perspective
downside standard deviation.

December 22, 2016 Ambit Capital Pvt. Ltd. Page 5

 Strategy

An examination of the Sortino ratio of equity returns in India also suggests that the
10 year investment horizon dominates all other time periods with an even more
material lead over the 5,7,3, and 1 year investment horizons (in descending order)
(see exhibit below).
Exhibit 8: The 10 year investment horizon outperforms even on a downside risk
adjusted basis

8
6.6
Sortino Ratio

4
1.9 1.8
2
0.6 0.7

0
1Yr 3 Yr 5 Yr 7 Yr 10 Yr
Investment Horizon

Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016.
Additionally,
 The 1 year and 3 year investment horizon stand out as the period offering the
worst Sortino ratio, or the downward risk adjusted return.
 The 7 year, 5 year and 10 year investment horizon entail a Sortino ratio which is
3.1x, 3.2x and 11x times more respectively than that compared to a 1 year
period.

Insight#4: The 10 and 7 year horizons offer the best probability of beating
the risk free rate The 10 year investment horizon
An examination of the probability of beating the risk free rate suggests that this offers the highest probability of
probability is the highest for the 7 and 10 year investment horizons. In fact, the 10 beating the risk free rate
year time horizon appears be the best bet for an investment manager who is keen to
minimize the chances of not beating the risk free rate (see exhibit below).
Exhibit 9: Probability of beating the risk free rate is the highest in 1,7, and 10 year periods
Equity Returns Interval (BSE100, in %) Probability of
Investment Total no. of
Less -22% -7% 8% 23% More returns
Horizon observations
than -22% to -7% to 8% to 23% to 38% than 38% exceeding 8%
1 year 12% 12% 22% 18% 10% 26% 297 54%
3 year 0% 5% 44% 28% 12% 11% 273 51%
5 year 0% 0% 46% 40% 10% 4% 249 54%
7 year 0% 0% 34% 52% 13% 0% 225 66%
10 year 0% 0% 24% 76% 0% 0% 189 76%
Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December 2016.

Additionally,
 The 1 year investment horizon offers the third highest probability of beating the
risk free rate at 54% (i.e. 18%+10%+26%). However, this high probability entails
2the risk of a high downside as well as the probability of making equity returns of
-7% or less stands at an elevated level of 24%.

December 22, 2016 Ambit Capital Pvt. Ltd. Page 6

 Strategy

Exhibit 10: The 1 year horizon returns entail high downside as well as upside risks

60
No. of observations

The 1 year investment horizon

40
typically tends to have high
volatility of returns

20

0
-100% -50% 0% 50% 100% 150% 200% 250%
BSE100 returns (in %)
Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December
2016. The red dotted lines represent the average, average +1standard deviation, and average -1standard
deviation.
 The probability of beating the risk free rate decreases as the investment horizon
increases to 3 years (to 51%) and returns to 54% for the 5 year horizon (exhibits
below).

Exhibit 11: The probability of beating the risk free rate is Exhibit 12: The probability of beating the risk free rate is
51% for a 3 year investment horizon 54% for a 5 year investment horizon
150 150
No. of observations

No. of observations

100 100

50 50

0 0
-40% 0% 40% 80% -40% 0% 40% 80%
BSE100 returns (in %) BSE100 returns (in %)

Source: Bloomberg, Ambit Capital Research. Note: Period under consideration Source: Bloomberg, Ambit Capital Research. Note: Period under
is from April 1991 – December 2016. The red dotted lines represent the consideration is from April 1991 – December 2016. The red dotted lines
average, average +1standard deviation, and average -1standard deviation. represent the average, average +1standard deviation, and average -
1standard deviation.

 Once the investment horizon increases to 7 years and beyond, the probability of
beating the risk free rate picks up. For the 7 and 10 year investment periods, the
Probability of beating the risk free
same is 66% and 76% respectively. Interestingly, an investor is virtually
rate picks up with a 7 year and
guaranteed a return between 8%-23% if they are willing to remain invested for a
above investment horizon
10 year long period. The probability of making a return less than -7% over both
the 7 and 10 year investment horizons is 0% (exhibits below).

December 22, 2016 Ambit Capital Pvt. Ltd. Page 7

 Strategy

Exhibit 13: The 10 year investment horizon is best placed to beat the risk free rate

Average:13%
-1SD
No. of observations

+1SD
120
10 Yr horizon has a fat
right tail

80 -1SD Average:17% +1SD

10 Yr investment horizon
1 Yr investment horizon
40 1 Yr horizon has a
fat left tail

0
-50% -30% -10% 10% 30% 50% 70% 90% 110% 130% 150%
BSE100 returns (in %)

Source: Bloomberg, Ambit Capital Research. Note: Period under consideration is from April 1991 – December 2016. The red dotted lines represent the average,
average +1standard deviation, and average -1standard deviation for the 1 year investment horizon and the black dotted lines represent the average, average
+1standard deviation, and average -1standard deviation for the 10 year investment horizon. The x axis is cut at 150% - note the maximum value is

December 22, 2016 Ambit Capital Pvt. Ltd. Page 8

 Strategy

Section 2: Investment Implications

Given that our analysis suggests: (1) that equity market returns in India are
not normally distributed; and (2) that the probability of equity returns being
higher than the risk free rate is the highest over the 7 and 10 year time
horizon, we urge investors to invest in Ambit’s Coffee Can Portfolio (click here
our note dated 17 November 2016 for details). The Coffee Can construct
hinges on investing in high quality franchises which have a superior track
record of financial performance over the previous decade.
The Coffee Can portfolio was first introduced in our 17 November 2014 thematic
The Coffee Can construct hinges
aimed at providing investment ides to investors who have the ability to hold stocks for
on investing in high quality
very long periods of time (i.e. ten years or more).
franchises over a long term
The four factors that work in the favour of the Coffee Can construct are: (1) Higher
probability of returns over the long term, (2) A longer time horizon allows the power
of compounding to work, (3) Neutralising the negatives of “noise”, and (4) no churn.
In light of the findings shown in Section 1, the Coffee Can Portfolio becomes even
more relevant as:
 The Coffee Can Portfolio lasts for ten years and thus optimizes the chance of
beating the risk free rate. This is because the 10 year investment horizon is the
best placed on risk adjusted terms (refer to Section 1 for details).
 The Coffee Can Portfolio employs the basic principles of investing for stock
selection. The tests of stock selection center around a long-term track record of
delivery on revenue growth and RoCE generation. As shown in the exhibit below,
the Coffee Can constructs tends to outperform the benchmark indices in every
iteration.
 The Coffee Can Portfolio in each of its 16 iterations has outperformed both the
Sensex as well as the broader market indices on not only an absolute basis but
also on a risk adjusted basis.
Exhibit 14: Sixteen iterations of the Coffee Can Portfolio have outperformed the
Sensex
Kick-off All-cap All-cap CAGR Outperformance
year* CCP (start) CCP (end) return relative to Sensex
2000 500 3,831 22.6% 6.6%
2001 600 9,802 32.2% 11.7%
2002 800 7,709 25.4% 5.1%
2003 900 10,175 27.4% 7.2%
2004 1,000 16,849 32.6% 12.7%
2005 900 6,643 22.1% 6.0%
2006 1,000 6,376 20.4% 9.0%
2007 1,500 7,828 19.5% 10.8%
2008 1,100 5,724 22.1% 11.2%
2009 1,100 4,843 22.7% 11.5%
2010 700 2,042 18.7% 9.5%
2011 1,400 2,550 12.1% 2.7%
2012 2,200 5,356 23.3% 9.9%
2013 1,800 4,762 34.8% 21.4%
2014 1,600 2,331 22.2% 21.0%
2015 2,000 2,387 19.3% 13.4%
Source: Bloomberg, Ambit Capital research. Note: Full 10 year CAGR return calculation is done for the periods
from 2000 – 2006 (starting 30th June). For periods after 2006, CAGR calculation is performed till September
2016 ( this is excluding live portfolios for 2014 and 2015 for which CAGR returns and absolute returns have been
calculated since these portfolios were launched in Nov ’15 and Nov ’16 respectively).

December 22, 2016 Ambit Capital Pvt. Ltd. Page 9

 Strategy

Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 saurabh.mukherjea@ambit.co
Pramod Gubbi, CFA Head of Equities (022) 30433124 pramod.gubbi@ambit.co
Research Analysts
Name Industry Sectors Desk-Phone E-mail
Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 nitin.bhasin@ambit.co
Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 aadesh.mehta@ambit.co
Abhishek Ranganathan, CFA Retail (022) 30433085 abhishek.r@ambit.co
Anuj Bansal Mid-caps (022) 30433122 anuj.bansal@ambit.co
Aditi Singh Economy / Strategy (022) 30433284 aditi.singh@ambit.co
Ashvin Shetty, CFA Automobile (022) 30433285 ashvin.shetty@ambit.co
Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 bhargav.buddhadev@ambit.co
Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 deepesh.agarwal@ambit.co
Dhiraj Mistry, CFA Consumer (022) 30433264 dhiraj.mistry@ambit.co
Gaurav Khandelwal, CFA Automobile (022) 30433132 gaurav.khandelwal@ambit.co
Girisha Saraf Mid-caps / Small-caps (022) 30433211 girisha.saraf@ambit.co
Karan Khanna, CFA Strategy (022) 30433251 karan.khanna@ambit.co
Mayank Porwal Retail (022) 30433214 mayank.porwal@ambit.co
Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 pankaj.agarwal@ambit.co
Paresh Dave, CFA Healthcare (022) 30433212 paresh.dave@ambit.co
Parita Ashar, CFA Metals & Mining / Aviation (022) 30433223 parita.ashar@ambit.co
Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 prashant.mittal@ambit.co
Rahil Shah Banking / Financial Services (022) 30433217 rahil.shah@ambit.co
Rakshit Ranjan, CFA Consumer (022) 30433201 rakshit.ranjan@ambit.co
Ravi Singh Banking / Financial Services (022) 30433181 ravi.singh@ambit.co
Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 ritesh.gupta@ambit.co
Ritesh Vaidya, CFA Consumer (022) 30433246 ritesh.vaidya@ambit.co
Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 ritika.mankar@ambit.co
Ritu Modi Automobile (022) 30433292 ritu.modi@ambit.co
Sagar Rastogi Technology (022) 30433291 sagar.rastogi@ambit.co
Sudheer Guntupalli Technology (022) 30433203 sudheer.guntupalli@ambit.co
Sumit Shekhar Economy / Strategy (022) 30433229 sumit.shekhar@ambit.co
Utsav Mehta, CFA E&C / Industrials (022) 30433209 utsav.mehta@ambit.co
Vivekanand Subbaraman, CFA Media (022) 30433261 vivekanand.s@ambit.co
Sales
Name Regions Desk-Phone E-mail
Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 sarojini.r@ambit.co
Dharmen Shah India / Asia (022) 30433289 dharmen.shah@ambit.co
Dipti Mehta India (022) 30433053 dipti.mehta@ambit.co
Krishnan V India / Asia (022) 30433295 krishnanv@ambit.co
Nityam Shah, CFA Europe (022) 30433259 nityam.shah@ambit.co
Parees Purohit, CFA UK (022) 30433169 parees.purohit@ambit.co
Punitraj Mehra, CFA India / Asia (022) 30433198 punitraj.mehra@ambit.co
Shaleen Silori India (022) 30433256 shaleen.silori@ambit.co
Singapore
Praveena Pattabiraman Singapore +65 6536 0481 praveena.pattabiraman@ambit.co
Shashank Abhisheik Singapore +65 6536 1935 shashankabhisheik@ambitpte.com
USA / Canada
Ravilochan Pola – CEO Americas +1(646) 793 6001 ravi.pola@ambitamerica.co
Hitakshi Mehra Americas +1(646) 793 6002 hitakshi.mehra@ambitamerica.co
Production
Sajid Merchant Production (022) 30433247 sajid.merchant@ambit.co
Sharoz G Hussain Production (022) 30433183 sharoz.hussain@ambit.co
Jestin George Editor (022) 30433272 jestin.george@ambit.co
Richard Mugutmal Editor (022) 30433273 richard.mugutmal@ambit.co
Nikhil Pillai Database (022) 30433265 nikhil.pillai@ambit.co

December 22, 2016 Ambit Capital Pvt. Ltd. Page 10

 Strategy

Explanation of Investment Rating

Investment Rating Expected return (over 12-month)
BUY >10%
SELL <10%
NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock
POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
Disclaimer
This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically,
and, in some cases, in printed form.
Additional information on recommended securities is available on request.

Disclaimer
1. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio
Manager and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI.
2. AMBIT Capital makes best endeavours to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes
to be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the
accuracy or completeness of any information obtained from third parties. The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this
Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.
3. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of
this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital or its affiliates shall not be responsible and/ or liable for any direct/consequential loss
howsoever directly or indirectly, from any use of this Research Report.
4. If this Research Report is received by any client of AMBIT Capital or its affiliate, the relationship of AMBIT Capital/its affiliate with such client will continue to be governed by the terms and conditions
in place between AMBIT Capital/ such affiliate and the client.
5. This Research Report is issued for information only and the 'Buy', 'Sell', or ‘Other Recommendation’ made in this Research Report such should not be construed as an investment advice to any
recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities and should not be intended or treated as a substitute for necessary review or validation or any professional advice.
Recipients should consider this Research Report as only a single factor in making any investment decisions. This Research Report is not an offer to sell or the solicitation of an offer to purchase or
subscribe for any investment or as an official endorsement of any investment.
6. This Research Report is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied in
whole or in part, for any purpose. Neither this Research Report nor any copy of it may be taken or transmitted or distributed, directly or indirectly within India or into any other country including
United States (to US Persons), Canada or Japan or to any resident thereof. The distribution of this Research Report in other jurisdictions may be strictly restricted and/ or prohibited by law or contract,
and persons into whose possession this Research Report comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.
7. Ambit Capital Private Limited is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. SEBI Reg.No.- INH000000313.

Conflict of Interests
8. In the normal course of AMBIT Capital’s business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one client’s interests conflicting
with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and that clients’ interests are protected. AMBIT Capital has policies and
procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital
segregates the activities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and
should make informed decisions in relation to AMBIT Capital’s services.
9. AMBIT Capital and/or its affiliates may from time to time have or solicit investment banking, investment advisory and other business relationships with companies covered in this Research Report and
may receive compensation for the same.

Additional Disclaimer for Canadian Persons

10. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities and/or to provide advice with respect to securities.
11. AMBIT Capital's head office or principal place of business is located in India.
12. All or substantially all of AMBIT Capital's assets may be situated outside of Canada.
13. It may be difficult for enforcing legal rights against AMBIT Capital because of the above.
14. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2
Canada.
15. Name and address of AMBIT Capital's agent for service of process in the Province of Montréal is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada.

Additional Disclaimer for Singapore Persons

16. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP
289) and Paragraph 11 of the First Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore.
17. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a
Singapore Person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Additional Disclaimer for UK Persons

18. All of the recommendations and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover. No part of this research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research report. This report may not be
reproduced, redistributed or copied in whole or in part for any purpose.
19. This report is a marketing communication and has been prepared by Ambit Capital Pvt Ltd of Mumbai, India (“Ambit”) and has been approved in the UK by Ambit Capital (UK) Limited (“ACUK”)
solely for the purposes of section 21 of the Financial Services and Markets Act 2000. Ambit is regulated by the Securities and Exchange Board of India and is registered as a Research Entity under the
SEBI (Research Analysts) Regulations, 2014. ACUK is regulated by the UK Financial Services Authority and has registered office at C/o Panmure Gordon & Co PL, One New Change, London,
EC4M9AF.
20. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article
49(2)(a) to (d) (high net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or (ii) are professional
customers or eligible counterparties of ACUK (all such persons together being referred to as "relevant persons"). This report must not be acted on or relied upon by persons in the UK who are not
relevant persons.
21. Neither Ambit nor ACUK is a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer, in conformity
with SEC Rule 15a-6.
22. Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes
should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of UK or US securities laws, or the law of any
such other jurisdictions.
23. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from publicly available sources that Ambit believes to be
reliable and accurate. However, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It has also not been independently
verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.
24. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors’
individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment
decisions. Further information is available upon request. No member or employee of Ambit or ACUK accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or
indirectly, from any use of this report or its contents.
25. The value of any investment made at your discretion based on this Report, or income therefrom, maybe affected by changes in economic, financial and/or political factors and may go down as well
as go up and you may not get back the original amount invested. Some securities and/or investments involve substantial risk and are not suitable for all investors.

December 22, 2016 Ambit Capital Pvt. Ltd. Page 11

 Strategy

26. Ambit and its affiliates and their respective officers directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add
to or dispose of any such securities (or investment). Ambit and ACUK may from time to time render advisory and other services to companies referred to in this Report and may receive compensation
for the same.
27. Ambit and its affiliates may act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies discussed in this Report (or
in related investments) or may sell them or buy them from clients on a principal to principal basis or may be involved in proprietary trading and may also perform or seek to perform investment
banking or underwriting services for or relating to those companies.
28. Ambit and ACUK may sell or buy any securities or make any investment which may be contrary to or inconsistent with this Report and are not subject to any prohibition on dealing. By accepting this
report you agree to be bound by the foregoing limitations. In the normal course of Ambit and its affiliates’ business, circumstances may arise that could result in the interests of Ambit conflicting with
the interests of clients or one client’s interests conflicting with the interest of another client. Ambit makes best efforts to ensure that conflicts are identified, managed and clients’ interests are
protected. However, clients/potential clients of Ambit should be aware of these possible conflicts of interests and should make informed decisions in relation to Ambit services.

Disclosures
29. The analyst (s) has/have not served as an officer, director or employee of the subject company.
30. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities.
31. All market data included in this report are dated as at the previous stock market closing day from the date of this report.

Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.

© Copyright 2016 AMBIT Capital Private Limited. All rights reserved.

Ambit Capital Pvt. Ltd.
Ambit House, 3rd Floor. 449, Senapati Bapat Marg,
Lower Parel, Mumbai 400 013, India.
Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100
CIN: U74140MH1997PTC107598
www.ambitcapital.com

December 22, 2016 Ambit Capital Pvt. Ltd. Page 12