This is a brief outline of the conference call with Nilesh Shah, Deputy Managing Director, ICICI Prudential Asset Management Company. The topic of the call was ICICI Prudential AMC's views on Macro Economy, Equity and Fixed Income Market.

1. Nilesh Shah’s view on Macro Economy, Equity and Fixed Income Markets
Author: iFAST Research Team
This is a brief outline of the conference call with Nilesh Shah, Deputy Managing Director, ICICI Prudential
Asset Management Company. The topic of the call was ICICI Prudential AMC’s Views on Macro Economy,
Equity and Fixed Income Market.
Key Highlights
• RBI may hike key policy rates by another 25 to 50 basis points on 2 November 2010 policy meet
• Bullish on the long-term India story but in the short term, markets look expensive as compared
to its historical valuation as well as relative to its peers
• Short-term interest rate looks attractive; Investors can lock their money in Fixed Maturity Plans
(FMPs) or Interval Funds. In case of duration funds, expect long-term G-Sec yield to come down
by early 2011
• Expects the September 2011 Earnings Per Share (EPS) to be around INR 1130 and March 2012
EPS to be around INR 1200-1250
• Bullish on the Infrastructure theme. Currently, the scheme holds an overweight position in
telecom, capital goods, construction and engineering, and are underweight on consumption
related sectors like consumer staples, pharmaceuticals
Macro Economy Perspective
Nilesh Shah is of the view that in 2008, because of Quantitative Easing done by central banks across the
world, especially in the US, UK and Japan, lot of liquidity started flooding into the developed and
developing economies. The US money market zoomed to US$4 trillion during its peak but over a period
of time, has declined to US$3 trillion.
The inflows into India are mainly on account of very low interest rates in developed markets and since
growth is still a matter of concern in developed markets. Currently, overseas investors are looking at
investing in India from three perspectives - stock market returns, currency appreciation and leveraging
(i.e., borrowing from developed market at low cost). In addition, with low interest rates in the UK, US
and Japan, India seems to be a more attractive investment option.
Inflation is still a worry even although it has fallen from its peak. Nilesh Shah expects inflation to fall,
albeit marginally, till next year. IIP numbers on a monthly basis look very volatile but if looked at from a
3 month moving average perspective, it is as per expectation. The economic growth will be supported by
a good monsoon and strong domestic demand and also, partly because of the loose fiscal policy
followed by the government in the form of NREGA scheme. He is of the opinion that GDP growth of 8%

2. to 8.5% for FY2011 is taken for granted and similar growth can be expected next year too. On
September quarterly result, though it is too early to comment, overall net results will be as per
expectation.
Difference between rally in January 08 and September 10
Though markets are currently trading at the same levels as January 2008, Nilesh Shah highlighted the
major differences in the rally of January 2008 and September 2010.
• On January 2008, the one year forward earning was expected to be around INR 900 which
translated to a P/E of 23 times and the actual earning came in at INR 800. So, markets were
trading at a P/E of 25 to 26 times whereas in today’s scenario, 33 months later, the markets are
trading at the same levels but earnings have increased by around 33% and March 2012 earnings
are expected to be around INR 1200 to 1250. Assuming that the earnings for September 2011
could be around 1130, hence the one year forward P/E of 18 to 18.5 times. Thus, the markets
are not as expensive as January 2008.
• The rally between September 2007 to January 2008 i.e. Sensex going from 15000 to 21000
levels, was driven by leveraging, which was fuelled heavily by Hedge Funds and speculators in
the futures and options markets. When the lending environment became tight and these
entities had to wind up their positions, it caused a massive market collapse. Whereas in the
current scenario the leverage is far lower than it was in 2008 and the presence of hedge funds is
far lower too. Plus, this time the flows are coming from Global Equity funds, Emerging Market
funds and Exchange Traded funds which is expected to be for long term.
• In January 2008, mid-cap stocks rallied significantly with some of the part valuation stocks like
real estate, construction and real estate township developers, airport developers , whereas this
time quality companies which have not diluted their capital have contributed to the rally.
Reasons for the market rally in September 2010
One of the primary reasons for the market rally was that in September 2010 around US$ 3 to 3.5 billion
flows came into the secondary market as there was a limited supply of papers from Qualified
Institutional Placements (QIP) and Initial Public Offerings (IPO). As a result, the stock prices moved up
substantially. But going forward, Nilesh Shah is of the view that a strong pipeline of supply is being
created, beginning with the IPO of Coal India followed up by Hindustan Copper and the Follow on Public
Offers (FPO) from Power Grid corporation, BPCL, ONGC, SAIL etc. Another factor is the IFRS provisions
coming from March 2011 onwards, in which companies would not be allowed to carry forward their
treasury stock, which is around 40,000 to 45,000 crore. Treasury stocks are shares held by companies in

3. their own treasury and can be used by the company to raise capital by selling those shares. Hence, a
good amount of supply is in the pipeline and this could impact the prices.
Valuation Perspective and Outlook on Equity Markets
On the valuation front, Nilesh Shah is of the view that historically the Sensex has traded at 14.5X to
15.5X one year forward earnings; whereas currently, we are trading at 18.5X to 19X one year forward
earnings. If we compare the relative valuation of the Sensex with its peer group, India is around 3 times
more expensive than Russia, about 1.8 to 1.9 times more expensive than Brazil and 1.3 times more
expensive than China. So, overall India is trading at reasonable premium to its historical levels and on a
relative basis too, India looks more expensive than its peer group.
With supply expected to come in from divestment and treasury stock sales as well as FII flows getting
sober, it was concluded that markets are trading at stretched levels and are becoming more expensive
and could witness a small correction. He was also of the view that a correction could come both in terms
of price as well as time. Price correction is when markets falls immediately by 5% to 10% and time
correction is when markets stays at current levels for 6 to 7 months while the earnings catch up with the
prices during this period.
However, the long- term growth story of India is still looking very attractive as compared to world, which
is slowing down. Deflation is a concern in the rest of the world whereas India is suffering inflation and
where growth is a concern for many countries, India can almost take growth for granted for many years
to come.
Outlook on Sectors and Positioning of Funds
Nilesh Shah concluded that markets should now focus on valuations and from this perspective Cement,
Infrastructure sectors like Capital Goods, Engineering, Construction and Metals may offer some
opportunities. According to the AMC, Consumer Staples, Pharmaceuticals, Banking and Technology
looks expensive and are trading near their fair value plus levels.
He is extremely bullish on infrastructure funds. Though they have underperformed the broader market,
from a valuation perspective they are trading at attractive levels. Moreover, he was also of view that the
country’s consumption growth cannot grow unabated unless supported by infrastructure.
Positioning of the funds: The funds are tilted towards the defensive side except for Dynamic Plan, which
has the mandate to take aggressive cash calls. As on September 2010, in general, the large cap oriented
funds are invested 90% and above and Midcap and Small Cap oriented funds are invested 85% and
above.

4. Recommended Funds in the current scenario:
• ICICI Prudential Dynamic Plan, which has cash & cash equivalents around 35% as on September
2010
• Large cap Fund: ICICI Prudential Focused Blue chip Equity Fund
• Midcap Fund: ICICI Prudential Emerging S.T.A.R. (Stocks Targeted at Returns) Fund.
• Thematic Fund: ICICI Prudential Infrastructure Fund
Perspective on Fixed Income Market
Nilesh expects that RBI may hike 25 basis points to 50 basis points on both Repo and Reverse Repo rates
on 2 November 2010 and another 25 basis points by December or January which could take the
overnight call rate from 6% to 6.5%. He was also of the view that in spite of a further 50 basis point hike,
short-term rates still looks attractive from current levels and investors can lock in their short term
money in Fixed Maturity Plans (FMPs), Intervals Funds or structured products like the ICICI Prudential
Long Term Plan.
On the duration side, he expects 10 year G-sec to hover around 8% and in the medium-term expect
interest rates to come down because of
1. The Government borrowing programme being within target
2. RBI releasing liquidity once inflation comes down
3. An increase in the FII limit on investments in both Government and Corporate Bonds
He expects that the 10 year G-sec yield rate could come down by early 2011.
Allocation of amount in Fixed Income Space:
• 50% of the corpus in FMPs, Interval Plans or ICICI Prudential Long term Plan
• 25% in Short Term Funds
• 25% in Long term Gilt or Income Funds
Disclaimer
This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an
investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial
products /investment products mentioned in this article or an attempt to influence the opinion or behaviour of the investors
/recipients. Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole
discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives
of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

5. Disclaimer by ICICI Prudential Asset Management Co. Ltd.
The views expressed above are those of Nilesh Shah and / or of the AMC. These views are based on the internal
analysis / research of the markets and publicly available information. Actual results may significantly differ from the
views expressed. These views alone are not sufficient and shouldn't be used for the development or implementation
of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates
are as of this date and are subject to change without notice. Neither the AMC, nor any person connected with it,
accepts any liability arising from any decisions taken on the basis of views expressed. The AMC does not warrant the
completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of
this information. The recipient of this article should rely on their investigations and take their own professional advice.
The recipient shall not print, copy, publish or share this document with any other person without prior consent of the
AMC.
The sector(s)/stock(s) mentioned above do not constitute any recommendation of the same and the schemes of
ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). The portfolio of the
scheme is subject to changes within the provisions of the scheme information document of the scheme. Please refer
to the scheme information document for investment pattern, strategy and risk factors.
This document contains certain forward-looking statements based on current expectations of ICICI Prudential Asset
Management Co. Ltd. (the AMC). Actual results may vary significantly from the forward-looking statements in this
document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and
political conditions in India, and outside India, volatility in interest rates and in Securities markets, new regulations
and government policies that might impact the business of the AMC, the general state of the Indian economy and the
demand for credit by commercial enterprises and consumers, and the management’s ability to implement the
company’s strategy. The AMC doesn’t undertake any obligation to update these forward-looking statements. This
document does not constitute an offer or recommendation to buy or sell any securities or investment in the units of
any of the schemes of ICICI Prudential Mutual Fund or any of its subsidiaries or associate companies.
ICICI Prudential Infrastructure Fund (An open-ended equity Scheme. Objective is to generate capital appreciation
and income distribution to unitholders by investing predominantly in equity/equity related securities of the companies
belonging to the infrastructure industries and balance in debt securities and money market instruments); Exit Load:
@; ICICI Prudential Dynamic Plan (An open-ended Equity Fund. Objective is to generate capital appreciation by
actively investing in equity and equity related securities and for defensive consideration in debt / money market
instruments); Exit Load: @; ICICI Prudential Focused Bluechip Equity Fund (An open-ended equity Scheme that
seeks to generate long-term capital appreciation and income distribution to unitholders from a portfolio that is
invested in equity and equity related securities of about 20 companies belonging to the large cap domain and the
balance in debt securities and money market instruments. The Fund Manager will always select stocks for investment
from among Top 200 stocks in terms of market capitalization on the National Stock Exchange of India Ltd. If the total
assets under management under this Scheme goes above Rs. 1000 crores the Fund Manager reserves the right to
increase the number of companies to more than 20. Investments in the Scheme may have concentration risk, as the
Scheme invests in about 20 stocks. Exit Load: @; ICICI Prudential Emerging S.T.A.R. (Stocks Targeted At Returns)
Fund An open-ended Equity Fund. Primary objective is to generate capital appreciation by actively investing in
diversified mid cap stocks. The Scheme will invest primarily in companies that have a market capitalisation between
100 crores and 2,000 crores. Exit Load: @; ICICI Prudential Long Term Plan (An open-ended Income Fund.
Objective is to generate income through investments in a range of debt and money market instruments of various
maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity. Exit
Load: If the amount sought to be redeemed or switched out, is invested for a period of - (a) upto 1 year from the date
of allotment- 0.75 % of applicable NAV; (b) more than 1 year from the date of allotment- Nil
@ Exit Load: If the amount sought to be redeemed or switched out, is invested for a period of - (a) upto 1 year from
the date of allotment- 1 % of applicable NAV; (b) more than 1 year from the date of allotment- Nil
Significant risk factors for debt oriented Schemes: Investments in the Scheme(s) may be affected by risks
relating to trading volumes, settlement periods, interest rate, liquidity or marketability, credit, reinvestment,

6. regulatory, investment in unlisted securities, default risk including the possible loss of principal, derivatives,
investment in securitised instruments and risk of Co-mingling etc.
Significant risk factors for equity oriented Schemes: Investments in the Scheme may be affected by trading
volumes, settlement periods, volatility, price fluctuations and risks such as liquidity, derivative, market,
currency, lending & borrowing, credit & interest rate.
The above are only the names of the Schemes and do not in any manner indicate either the quality of the
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