Reliance Infrastructure Fund

An Open-Ended Equity Scheme

NFO Opens on: 25th May 09
NFO Closes on: 23rd June 09

A Reliance Capital
Table of Contents
 Equity Markets
 India Infrastructure
 Funding Options
 Investment Opportunities
 Reliance Infrastructure Fund

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Indian Equity Markets – Visible Change

Oct 2008 Now

- Major global banks failed, more probable - Looks remote

Now
- Liquidity evaporated - Liquidity all around

- Risk aversion - Risk appetite returning

- Companies facing capital shortage - Equity raising easier, change in B/S

- Election uncertainty in India - Biggest Election verdict since 1984

- FIIs major sellers - FIIs becoming big buyers

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Equity Markets – Our View
 The Catapult

- Election - A big positive game changer

- Accompanied by improving monetary and economic conditions

- Governance, infrastructure and inclusive growth looks to be key goals of

incumbent Government

- FII/FDI inflows can be very strong

- Earnings upgrades may follow

- Sustainable attractive returns from Indian equities look possible

 What can go wrong?

- Another global financial catastrophe

- Big disappointment in pace of Government actions over next 6 months

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Everything Going For India
 Youngest population in the world
 Largest middle-class and consuming population
 Domestic focused economy
 Banking system proved to be amongst the healthiest
 Global leader in services
 Lowest cost producer in metals
 Huge savings and investment rates

However……
Source: Internal - RMF Research
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Infrastructure – Miles To Go
World Bank’s “ Global Competitiveness Report 2007-08”
 ‘Inadequate supply of infrastructure’
- Most problematic factor for doing business in India
 India ranked 48th out of 131 counties in the Global Competitive Index 2007
- Ranked 67th on the quality of infrastructure
 India lags behind in infrastructure facility usage compared to US & China

Comparision of Infrastructure Facilities

Particulars India US China
Electric consumption per capita (KwH) 618 14240 1684
Roads per mn people (km) 2983 21443 1471
Steel Consumption per capita (kg) 34 357 244
Rail route per mn people (km) 56 755 57
Cargo handled at ports per capita (kg) 572 7953 4265
No. of passengers handled at airports per 1,000 persons 71 4780 151

Source: Published Media, Global Research 2007-08

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Infrastructure Investment – China Vs India

8.5% Of 2008 GDP(USD 380 Bn) 6% Of 2008 GDP(Rs. 267,356 Cr)

7 of 36 Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
Infrastructure Investment – China Vs India

8.5% Of 2008 GDP(USD 380 Bn) 6% Of 2008 GDP(Rs. 267,356 Cr)

8 of 36 Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
 Realisation – Very Evident
Prime Minister Dr. Manmohan Singh
Our growth potential will be realized only if we can
ensure that our infrastructure does not become a
severe handicap
Dy. Chairman – India Planning Commission
Montek Singh Ahluwalia
One of the critical constraints which holds back our
growth rate is really the quality of infrastructure
Ex-CEO Infosys, Nandan Nilekani
India has achieved excellence in human capital, but
the country’s shabby infrastructure is proving to be a
major stumbling block for the country’s development
Source: CLSA Research April 2008
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Ex – Finance Minister P. Chidambaram
Infrastructure development is essential to sustain high
growth rates in future
Chairman – Tata Sons – Ratan Tata
We have a large deficit in almost every infrastructure
sector whether airports, power, roads, etc. This is an
area that needs large amounts of investment.
CEO, Bharti Airtel, Sunil Mittal
Indian industry would expect significant initiatives in
the area of resource mobilization for infrastructure
projects
Factors Driving Demand For Better Infrastructure
Economic Demographic Global
Factors Factors Integration
Growing economy Rising population Rising international
Rising disposable incomes Increasing urbanization trade and travel

Inadequate road width, Massive under capacity Delays, congestion,

poor riding quality, in railways for freight fuel wastage in
low speeds and passenger traffic air travel

10-14% power Poor WSS is major

High turnaround time,
contributor to diseases
shortages, frequent poor connectivity
brown outs at ports
WSS: Water Supply & Sanitation 10 of 36 Source: CLSA research, April 2008
 Now Also Political Pressure

Source: Election Commission 2009

GSDP: Gross State

Domestic Product Source: RBI: A study of budgets of 2008-09

States with focus on higher development expenditure has proved to be a boon for the Ruling Party
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Manifestos Unanimous On Infrastructure
- Commits to an agenda for change guided by three goals:
BJP Good Governance, Development & Security
- Investing heavily in infrastructure projects are at the top of our agenda

- Implement the Sethu Samundaram project early

- Super fast bullet train service between Chennai, Madurai & Coimbatore
DMK - Dedicated freight corridor is to be implemented between Chennai & New
Delhi

The party aimed at forming a secular, progressive and stable government

Trinamool Congress at the centre which would focus on economic reforms, industry, agricultural
development and adopt pro-people policies

- Reviewing of privatisation of infrastructure through PPP

Left - Emphasis on rural infrastructure
- Increased outlay on rural roads, electrification etc

12 of 36 Source: Media Reports, Election Manifesto of Respective Parties

 Congress Manifesto
 Manifesto makes intentions clear
- Increase public investment in infrastructure
- Ensure that India adds at least 12000-15000 MW of power capacity every year

- Rural electrification & reduction in distribution losses

- Implement a scheme to supply energy to poor families at affordable prices

- Promises a very significant increase in the share of nuclear power
- Connect villages through broadband network within 3 years

Source: Congress Manifest 2009

Strongest Government platform in India over the last 2 decades..& the opportunities could be substantial
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 Intentions Evident In Interim Budget 2009

 Government approval to 37 infrastructure projects worth Rs.70,000 Cr from August,

2008 to January, 2009 alone

 Under PPP mode, 54 Central sector infrastructure projects, in-principal or final

approval and 23 projects approved for viability gap funding in 2008-09

 IIFCL to refinance up to 60 % of commercial bank loans for PPP projects involving

investment of Rs.1,00,000 Cr in infrastructure over the next 18 months

IIFCL: India Infrastructure Finance Company Limited Source: http://indiabudget.nic.in

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 The Size Of Opportunity
Year when
India China
Particulars China
(2008) (2007)
Achieved
Expressways (Km) 200 1989 53,000
Air Passenger Traffic (Mn) 120 2006 186
Cargo Traffic (Major Ports) (Mn Tons) 519 1991 3,882
Power Generation Capacity (GW) 143 1992 720
Finished Steel (Mn Tons) 58 1991 465
Cement (Mn Tons) 218 1989 1,500
Source: India Infoline Research, Department of shipping India, National Bureau of statistics China

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 XIth FYP – Infrastructure Investment
th
Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Total XI FYP

Power 74,205 92,829 116,541 146,914 186,038 616,527

Roads 51,352 54,318 58,729 67,901 79,516 311,816
Telecom 33,075 39,834 50,293 63,408 80,390 267,000
Railway 33,207 39,964 48,626 59,738 76,466 258,001
Irrigation 27,002 33,839 42,625 53,946 65,718 223,130
Water Supply & Sanitation 25,840 31,110 37,868 46,555 57,754 199,127
Ports 9,691 11,740 14,271 17,397 20,841 73,940
Airports 6,223 6,459 6,814 7,296 7,956 34,748
Storage 3,777 4,098 4,446 4,824 5,234 22,379
Gas 2,984 3,454 4,005 4,651 5,407 20,500
Total Investment 267,356 317,645 384,218 472,630 585,320 2,027,168
Total (USD Billion) 65 77 94 115 143 494
Investment as % of GDP 6.0 6.5 7.2 8.1 9.2 7.5
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)
Source: Investment in Infrastructure during the Eleventh Plan published by The Secretariat for the Committee on Infrastructure

FYP : Five Year Plan

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 Much Bigger Outlay In The XIIth FYP

 The projected investment in infrastructure sector in the XIIth FYP would be USD
1,128 Billion
Projected GCFI (XIIth Plan)
2011E-12E 2012E-13E 2013E-14E 2014E-15E 2015E-16E 2016E-17E
GDP at Market Prices 6,347,900 6,919,300 7,542,000 8,220,800 8,960,600 9,767,100
Rate of growth of GDP (%) 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
GCF in Infrastructure as a % of GDP 9.00% 9.25% 9.50% 9.75% 10.00% 10.25%
GCF in Infrastructure (Rs. Crore) 571,311 640,035 716,490 801,528 896,060 1,001,128
Total GCFI (Rs. Crore) 4,626,552
Total GCFI (USD Billion) 1,128
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)
Source: Planning Commission of India
Estimates: GDP to grow at 9% per year, GCFI as % of GDP to increase from 9% in 2011-12 to 10.25% in 2016-17

FYP : Five Year Plan, GCFI: Gross Capital Formation In Infrastructure

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 Plans Fine – Show Me The Money
 Question marks on infrastructure spending
- Huge budgetary and fiscal deficit

- Past record on foreign flows so-so and not very robust

 However, future looks brighter

- Avenues to control deficit in sight

- PPP

- Foreign investments

PPP: Public Private Partnership Source: Internal - RMF Research

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 Fiscal Deficit – Likely To Reduce Going Forward
Subsidy and Fiscal Deficit
2007A-2010E (Rs bn) 2007A 2008A 2009RE 2010E
Food 24,014 31,330 43,630 55,000
Fertilizer 12,977 27,060 47,500 31,700 Subsidies as a contributor to fiscal
Petroleum 2,699 14,080 78,820 28,100
deficit is expected to decrease
Total 39,690 72,470 169,950 114,800
Subsidy/Fiscal deficit % 28 57 52 28
Source: Ministry of Finance, Kotak Institutional Equities Estimates

3 G Auctions Rs Crore
Bids at reserve price 8,590 Expected revenue from 3G
Bids at 2x reserve price 17,180
spectrum auction
Bids at 3x reserve price 25,770
Source: Internal - RMF Research

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 Divestment…
Name Mcap Govt.
(Rs. Cr) Holding (%)
Oil & Natural Gas Corp Ltd 212,026 74
NTPC Ltd 171,794 90 Divestment of minority stake in listed PSUs
MMTC Ltd 118,137 99
NMDC Ltd 110,219 98 to reduce fiscal burden
Bharat Heavy Electricals Ltd 99,884 68
Steel Authority Of India Ltd 68,276 86
Indian Oil Corp Ltd 56,049 80
Power Grid Corp of India Ltd 49,791 86
GAIL India Ltd 38,955 57 Divestment of profitable unlisted PSUs like
Power Finance Corp Ltd 24,591 90
National Aluminium Co Ltd
Neyveli Lignite Corp Ltd
23,517
19,923
87
94
BSNL, DVC etc
Rural Electrification Corp Ltd 12,446 82
Container Corp Of India 12,016 63
Mahanagar Telephone Nigam 5,572 56
Shipping Corp Of India Ltd 5,164 80 Sale of residual minority stake in privatised
Engineers India Ltd 4,320 90
Rashtriya Chemicals & Fert 3,603 93
Total 1,036,282
PSUs like VSNL(26%), Balco(49%) &
Divestment can give
Hindustan Zinc(29%)
5% Divestment 51,814
10% Divestment 103,628
Source: Bloomberg
Note: The name of the companies mentioned above are for illustration purposes only
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 Cash – Rich PSUs

 Will be key infra-developers without needing resources from Government budget :

- NTPC: Cash on books as on FY08 is Rs15,360 Crs
It can develop 20GW of capacity without raising capital

- ONGC: Cash on books as on FY 08 is Rs 18,652 Crs

- Railways: Generating cash of over Rs20,000crs every year

- Others like BSNL, AAI, DVC also have enough cash to fund their projects

Source: Internal - RMF Research

Note: The name of the companies mentioned above are for illustration purposes only
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 PPP Concept Gaining Credence

Growth Rate of PPP Projects by

value in the last 3 years over
previous 8 years is 104%

PPP Projects Awarded – Sector Wise

Sector % by Volume % by value
Road 71% 37%
More than 117 PPP deals Urban Development 12% 5%
closed in last 3 years when Airports 2% 14%
compared to 104 in the Ports 14% 43%
previous 8 years Railways 1% 1%
Total 100% 100%
Source: Company, DEA PPP Database and Citi Investment Research and Analysis
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 PPP & Privatisation
 Government is targeting around 30% of the total funding to come from PPP
Schemes

- As compared to 17% in Xth FYP

- 4x times the investment by private sector in the Tenth FYP

 In XIth FYP, almost all sectors like power, roads, railways, airports etc, are going
to witness increased private participation
Funding by PPP
30% of total Infrastructure Investment in 11th FYP
Power Road Telecom Railways Irrigation Sanitation Ports Airports Storage Gas Total
Investment Target 616,527 311,816 267,000 258,001 223,130 199,127 73,940 34,748 22,379 20,500 2,027,168
% of Sector Share 30 15 13 13 11 10 4 2 1 1 100
PPP Oppourtunity 162,517 112,503 177,689 50,491 N.A 5,396 54,457 21,165 11,190 6,499 601,905
% of Private Share 26 36 67 20 0 3 74 61 50 32 30
Rs. Crore(At 2006-07 prices)
Source: Planning Commission of India
PPP : Public Private Partnership, FYP : Five Year Plan

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 Funding Pattern - XIth FYP
Funding of XI FYP
X Plan XI Plan
Sectors Centre State Private Total Centre State Private Total
Electricity 102,463 97,553 91,834 291,850 255,316 225,697 185,512 666,525
Roads & Bridges 71,534 66,354 7,004 144,892 107,359 100,000 106,792 314,151
Telecommunication 49,013 - 54,352 103,365 80,753 - 177,686 258,439
Railways 108,950 10,402 307 119,659 201,453 10,000 50,354 261,807
Irrigation 13,617 97,886 - 111,503 24,759 228,543 - 253,302
WSS 42,316 21,465 1,022 64,803 42,003 96,306 5,421 143,730
Ports 2,185 1,530 10,356 14,071 29,889 3,627 54,479 87,995
Airports 3,823 12 2,936 6,771 9,288 50 21,630 30,968
Storage 577 866 3,377 4,820 4,476 6,713 11,189 22,378
Gas 8,713 - 1,000 9,713 10,327 - 6,528 16,855
Total 403,191 296,068 172,188 871,447 765,623 670,936 619,591 2,056,150
Rs. Crore(At 2006-07 prices)
Source: Planning Commission of India

Private Funding Gains Importance

FYP : Five Year Plan

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Success Stories Of Infrastructure Privatisation

Mundra Port

New Hyderabad Airport Mumbai – Pune Expressway

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Case For Foreign Investments In Infrastructure

 Attractive returns - 16% in power (through PPA Arrangement), attractive double

digits in others over a 20-30 year period

 Potential to invest huge sums of money given India’s need for infrastructure

 Stable political environment with the current decisive mandate

 Currency outlook - stable to appreciating Rupee

 Liberal policies – FDI allowed 74% to 100% in most infrastructure sectors

PPA: Power Purchase Agreement Source: Internal - RMF Research, CERC

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 FDI – India Can Attract Much More
Sector 2005-06 2006-07 2007-08 2008-09 Cumulative % Of Total
Rs. Crore (Apr-Mar) (Apr-Mar) (Apr-Dec) (Apr-Feb) (Apr00-Feb 09) Inflows
Services Sector 2,399 21,047 26,589 24,074 79,771 22.00%
Telecommunications 2,776 2,155 5,103 11,155 27,902 8.00%
Construction Activities 667 4,424 6,989 8,287 21,672 6.00%
Housing & Real Estate 171 2,121 8,749 11,316 22,477 6.00%
Power 386 713 3875 4268 13,898 4.00%
Total FDI in India(2000-09)(Rs. Cr) 24,613 70,630 98,664 112,896 382,996
Total FDI in India(2000-09)(USD Billion) 5.5 15.7 24.6 25.4 87.9

China attracted 9X FDI as

♂

compared to India

Source: Department of Industrial Policy & Promotion, Internal - RMF Research

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Private Equity – An Important Source Of Funding

Source: Grant Thornton

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Infrastructure Fund – Why Now ?
2008 Now

 Valuations very stretched  Despite recent spurt, still attractive

 Political concerns at peak  Political stability for five years

 Global scenario –very scary and  Some stability. Investors will move

hazy to higher growth economies

 Raising debt and equity  Interest rates plunge, debt

impossible – a must for available, investors looking for

infrastructure equity investments

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 Valuations: Reasonable given growth
prospects

Source: Bloomberg
Note: The name of the companies mentioned above are for illustration purposes only
We do not recommend any action based on the above illustration
% Change in price from 2007-08 high is compared to prices as on 22nd May 09

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 Introducing
Reliance Infrastructure Fund

A Reliance Capital
 Investment Strategy

 Investment in Equities of Infrastructure Companies : 65%-100%*

 Investment in Debt & Money Market Securities : 0% - 35%*

 Multi – Cap Strategy

 Investment with a medium to longer term horizon

* Please refer detailed asset allocation on slide no 33

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 Scheme Features
The primary investment objective of the scheme is to generate long term
capital appreciation by investing predominantly in equity & equity related
instruments of companies engaged in infrastructure & infrastructure
Investment Objective related sectors & which are incorporated or have their area of primary
activity, in India & the secondary objective is to generate consistent
returns by investing in debt & money market securities

Nature of Scheme An Open Ended Equity Scheme

Benchmark BSE 100

Equity & Equity Related Securities including derivatives engaged in

infrastructure sectors & infrastructure related sectors#
Proposed Asset 65%-100%
Allocation
Debt & Money Market Securities **
0% - 35%

Fund Manager Sunil Singhania

New Fund Offer Price: Rs.10/- per unit plus applicable load
** including securitised debt up to 30%
#An overall limit of 100% of the portfolio value has been introduced for the purpose of equity derivatives in the scheme. The margin money requirement for the purpose of derivative exposure will be as per the SEBI Regulations. The derivate
exposure will be restricted to such limit so that the scheme does not leverage upon margin requirements

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 Scheme Features
Load Structure : During New Fund Offer &
Choice of Plans/Options Continuous Offer including SIP Installments
Retail & Institutional Plan For Retail Plan:
Growth Plan:
Growth & Bonus Option Entry Load:
Dividend Plan :
Dividend Payout Option • For subscription below Rs. 2 Crs – 2.25%
Dividend Reinvestment Option • For subscription of Rs.2 Crs & above & below Rs.5 Crs – 1.25%
• For subscription of Rs.5 Crs & above - Nil
Minimum Application Amount Exit Load:

For Retail Plan : Rs.5000/- For subscriptions of less than Rs 5 Crs per purchase transactions
For Institutional Plan: Rs.5 Crs • 1% If redeemed/ switched on or before completion of 1 year from
the date of allotment
SIP • Nil If redeemed/ switched after completion of 1 year from the date
of allotment
Available : Retail Plan For subscriptions of more than Rs. 5 Crs : Nil
Mode of Payment :
Only through Direct Electronic Debit to the For Institutional Plan:
investor’s bank account. This facility is offered
only to the investors having bank accounts in Entry Load : Nil
HDFC Bank, Axis Bank Exit Load : Nil
Waiver of Load for Direct Applications : As per SEBI Circular no. SEBI/MD/CIR no. 10/112153/07 dated December 31, 2007, no entry load shall be charged for direct applications received
by the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/Investor Service Centre that are not routed through any
distributor/agent/broker

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Risk Factors
The views expressed herein are the personal views of the Fund Managers. The views constitute only the opinions and do not constitute any guidelines or
recommendation on the course of the action to be followed. Readers are strongly advised to verify the contents before taking any investment decision based on this
opinion. The above is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. The readers should exercise due
caution and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or
opinion which is expressed herein. These are not necessarily the views of Reliance Capital Asset Management Ltd. Neither the AMC, the trustees, the Fund nor any of
their affiliates or representatives assume any responsibility/liability for the accuracy, completeness, adequacy and reliability of information provided herein. The
information contained herein has been obtained from sources published by third parties. While such publications are believed to be reliable and we have made best
efforts to avoid any errors or omissions, however, neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the
accuracy, completeness, adequacy and reliability of such information.

Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. Statutory Details:
The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956.
Scheme Specific Risk Factors: Portfolio Turnover : Given the nature of the scheme, the portfolio turnover ratio may be very high and the AMC may change the portfolio
according to the asset allocation commensurate with the investment objective of the scheme. The effect of high portfolio turnover could be higher brokerage and
transaction costs. Due to these factors the NAV of scheme might be impacted. Terms of Issue: The Units are available at Rs. 10/- per unit plus applicable load during
the New Fund Offer Period and thereafter at applicable NAV based prices. The AMC will calculate and disclose the first NAV not later than 30 days from the closure of
the New Fund Offer Period. Subsequently, the NAV will be calculated and disclosed at the close of every working day which shall be published in at least in two daily
newspapers and also uploaded on AMFI site i.e. www.amfiindia.com and Reliance Mutual Fund website i.e. www.reliancemutual.com. General Risk Factors: Mutual
Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any
investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past
performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Reliance Infrastructure Fund is only the name of the Scheme
and does not in any manner indicate either the quality of the Scheme; it's future prospects or returns. The Sponsor is not responsible or liable for any loss resulting from
the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the
corpus. The Mutual Fund is not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions, though it
has every intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the Scheme. For details of scheme features apart
from those mentioned above and scheme specific risk factors, please refer to the provisions of the scheme information document. Scheme information document and
KIM cum application form is available at all the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the scheme information document carefully before
investing. The information contained herein has been obtained from sources published by third parties.

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Thank you

A Reliance Capital