DOCUMENT FOR DISCUSSION

1. DOCUMENT FOR DISCUSSION “ Bouncing at the Bottom; rather than a sharp uptick” Tapasije Mishra RBI Govt. Pvt. Sector • 22nd April, 2013 PRIVATE & CONFIDENTIAL

2. Executive Summary • 2013 is an interesting year with equity market participants positive and corporate India very cautious • Significant positive momentum created by Ministry of Finance; strong ETF liquidity • Both inflation and growth moderating; no pickup in private capex in 2013 • Conflict between lag and lead indicators : • CV sales remain poor in December; stocks are pricing in an upturn; our analyst has a –ive view on current prices • Toll roads witnessing traffic declines in past 6 months • The Indian consumer to feel a big squeeze • Rise in middle class UN-employment; job creation not yet on the national agenda

3. Actionable Ideas Prices as on April 5th, 2013

4. CV Sales Dropped 30% Between Mar-12 and Jan-13, Inventories Build Up Decline in CV sales from 99K to 69K per month in last 10 months Y-o-Y CV Sales Growth After witnessing significant upward movement in Q3 FY13, Auto stocks are now correcting, in line with fundamentals 11% -2% -2% -4% -8% -7% -8% -18% *Annualized data based on 10M FY13 actuals Source: MOSPI, SIAM, Bloomberg

5. Toll Roads’ Traffic Growth Rate Flat or Negative in 9MFY13 Declining Traffic Growth Across Key Freight Corridors on the Golden Quadrilateral

6. Airport Passenger Traffic Down 4% in FY13 Total Pax in Mn g=-4% g=13% g=16% g=-7% g=14% g=21% 0% -7% -3% -6% -13% -4% -8% -8% -11% -5% -7% -9% Decline in traffic at all major airports, similar to the trend witnessed during FY09 *Annualized data based on 9M FY13 actuals Source: AAI

7. Why is IEX Power at Rs.3.70 ? Energy supply and peak deficit (%) Short term power tariff data for January 2013 (Rs./kwh) - MoM Elections? Short term power rates will rise! JSPL Buy Source: CEA

8. 7.5% Average Decline in Container Traffic at Ports in Q3 FY13 Cargo handled at Major Ports Positive ..sustainable? Container volumes at Major Ports + Mundra + Pipavav Source: IPA

9. Significant Equity Paper Supply in Pipeline

10. IDFC Recommended Stocks

11. Telecom: Ring Out the Old, Ring in the New Analyst: Hitesh Shah • Why are we bullish on Indian Telecom sector? • Declining competitive intensity as fringe players focusing on profitable growth; number of players down to 6-8, only marginally ahead of 5-7 in 2007 • Incumbents have gained market share despite being rational in the market place • Realization should see an uptick over the medium-term: freebies withdrawal, tariff increase and higher data usage • Valuations (5.5 – 6.0x FY14E EBITDA) offer 30-40% upside over the next 12-18 months • What is yet to be addressed? • Regulatory proposals like auction roadmap, re-farming, domestic roaming charges and M&A guidelines • Entry strategy of Reliance Infotel (Greenfield, Brownfield or only LTE) is still a black box • In our view, Greenfield entry in a mature voice market makes little business sense Source: IDFC Securities Research Note: Prices as of 4th April 2013

12. ~12% Market Share Critical to Break Even, Consolidation is Imperative Airtel Vodafone Rcom Idea BSNL/MTNL Tata Teleservices Others Uninor Aircel

13. IT Services: Sentiment improving… Business to follow Analyst: Hitesh Shah • We are incrementally positive on the Indian IT Services sector • Macro data points to recovery in the US; pipeline/ sentiment has improved • Discretionary spend returning in most verticals in North America (excl. Investment Banks and Telecom) • S&P 500 operating EPS has turned the corner; Indian IT revenues is highly correlated with a 3- quarter lag • However, bad news is not over yet; CY13 IT budgets to be largely flat and deal closures are taking long • Stock picking is name of the game - we prefer “growth at reasonable price” • Pick stocks where improving macro environment is not captured in valuations • Tier1 stock returns to reflect earnings growth; some room for re-rating • Small-mid cap stocks to see valuation re-rating and earnings growth • Prefer Infosys (OP) vs.TCS (N) – Valuations to converge as growth rates converge • Sell HCL Tech (UP) – Hiring incongruent with deal win announcement • Like KPIT (expertise in Auto-electronics, JDEdwards and SAP) and Persistent (play on IP driven business) Source: IDFC Securities Research Note: Prices as of 4th April 2013

14. Capital Goods: No Recovery in Sight Analyst: Bhoomika Nair • We remain underweight on the capital goods sector • New project announcements plummet by 74% Y-o-Y suggesting a deteriorating capex cycle • Challenges in execution remain; projects under implementation but stalled continue to touch new highs • Investment concerns persist on matters such as land acquisition, environmental clearances, FSA’s etc • Overcapacity and regulatory hurdles to drive slower recovery in areas such as Metals, cement, refineries & power • Likely to witness slower order inflows and backlogs providing limited visibility for earnings • Recommend selling Thermax (extremely rich valuations and possible disappointment on order inflows) and Voltas (EMP cycle recovery to take time, margins continue to decline, higher competition in unitary cooling poses a risk) • Recommend buying Havells (for their strong brand and distribution network driving a sustainable 14% CAGR in earnings) and Crompton (since its risk reward is quite favourable with most negatives known and priced)

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