Lunar Airborne Dust Toxicity Assessment Group (LADTAG) - NASA

India – short term headwinds, but long term positiveGrowth(Potential growth in the 7.5–8.5% rangein the near term, graduating to 9.0%)ConsumptionFavourable demographicsRising household purchasing powerInvestmentPoised to be the keydriver of GDP growthEconomic reformsInfrastructure, Education, Agriculture,Energy and Financial SectorConsumption – the driving force: Increased social spending, implementation of the “right to work” with the introduction of NREGA, a real estate boom and agricommodityinflation have increased the purchasing power of rural India. Improving demographics and rising income levels are changing the profile of the foodbasket and discretionary spending patterns.Investment – need of the hour: India is a severely constrained economy and the government needs to give a big push to both industrial capex and infrastructureactivity. After a hectic 2006-09, there seems to have been a pause due to environmental issues and corporates repairing their balance sheets. We expect thingsto pick up in next 6-8 months once the current macro headwinds abate.Reforms – badly needed to fast track growth: Economic reforms have been the most significant facilitator of growth since the early 1990s and have broughtabout positive structural changes in India’s economy. However, the government needs to maintain the pace of reforms, which often get sidelined around issuessuch as scams, corruption charges and standoffs with the opposition parties.Limited upside; time to be selective: While the market looks fairly priced at the moment, the uncertain outlook on inflation and interest rates indicates that risksare to the downside. Investors should consider focusing on accumulating good quality names that have strong balance sheets and visibility in earnings. Our fairvalue estimate of the Sensex is 20500 by March-end 2012; implying a 16x PER on FY12 eps. However, macro headwinds and risk aversion may keep valuationsaround long-term avg. of 14.5-15x.Page 2