Table Of Contents
India Opportunity
Investment Strategy
Positioning
Product Features
India Moving Towards Higher Growth Trajectory
India took 60 years to get to its first USD 1 Trillion GDP in FY08, but the move to USD 2
Trillion GDP will be in next 5-6 years, similar to that of China
Due to the huge consumption and savings/investment boom, USD 2 Trillion GDP is not a
destination, but a milestone in India’s ongoing journey towards USD 4 Trillion GDP in the
subsequent 5-7 years, and so on
Estimated for 2010-2014
Source: CMIE, MOSL, RCAM Estimates
Emerging Markets To Attract Higher Inflows
Period 1995-99 2000-04 2005-09 2009 Growing size of EM economy and
Avg. World GDP $Bn 30,292 35,291 53,583 57,228
Proportion of the World Average GDP level (%)
fading distinction between EM
DM countries 80.4 79.5 72.2 69.3 and DM economies should lead to
US 27.6 30.5 25.7 24.9 increased capital allocation to EM
UK 4.4 4.9 4.6 3.8
Euro area 23.2 21.4 22.1 21.5
economies
Japan 14.8 12.2 8.7 8.8
Period 1995-99 2000-04 2005-09 2009
EM countries 19.6 20.5 27.8 30.7
Avg.World M-Cap 14,047,039 17,734,308 25,689,296 24,630,640
Brazil 2.6 1.7 2.4 2.6
Proportion of the Average World M-Cap (%)
Russia 1.0 1.1 2.2 2.2
DM markets 94.1 95.3 90.1 86.8
India 2.2 1.5 1.9 2.2
United States 46.6 51.9 44.3 42.5
China 3.1 4.3 6.5 8.3
United Kingdom 9.7 10.4 9.6 9.0
South Africa 0.5 0.4 0.5 0.5
Europe (ex-EM) 30.0 29.1 29.0 27.3
Japan 13.8 9.0 9.5 8.6
Presently, EM economies hold over 30% EM markets 5.9 4.7 9.9 13.2
share in Global GDP, while their share in Brazil 0.7 0.4 1.3 2.2
Russia 0.2 0.2 0.8 0.8
Global market cap is only 13%
India 0.4 0.3 0.7 1.0
China 0.0 0.3 1.5 2.4
Korea 0.6 0.8 1.4 1.7
MSCI Indices used as proxy for market-cap data (Units: USD million)
Source: IMF GDP data, MSCI m-cap data, RCAM Estimates, DM : Developed Markets, EM: Emerging Markets
Investments Will Flow To India
USD (Trillion) CY2008 CY2014
BRIC
GDP 8.29 16.36
Market Cap 5.61 16.36
FII Investments* 1.00 ??
US
GDP 14.20 16.47
Market Cap 12.09 16.47
FII Investments* 10.64 ??
In 2014, BRIC’s combined GDP will be equal to US GDP
At Market Cap GDP ratio of 1, BRIC countries will have a market cap of USD 16.36
Trillion
Significant FII money will flow into the BRIC markets – India will gets its share of
investments
Source - RCAM Estimates, *FII numbers are approximations, BRIC – Brazil, Russia, India, China
Investment Outlook
Currently market is evenly poised with positive bias
India has emerged stronger from the global slump and is back on track to grow in excess
of 7-8% per annum
For a sustained long term growth, the 3 growth drivers are in place:
Savings – Domestic savings are among the highest in the world
Consumption – Set to explode
Investments – At 34% of the GDP, again among the highest in the world
Policy announcements will have significant impact on the direction of the market
Themes for the coming year
Big valuation disparity among large, mid caps & small caps. Opportunity for alpha
creation
Stock selection will be the key Source: Bloomberg, RCAM Estimates
Why Invest In Small Caps?
Key Benefits Of Investing In Small Caps
Higher Earnings Growth
En
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Sc
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Maturity
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Gr
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Sta
Small Caps Mid Caps Large Caps
Re – Rating Potential For Small Caps
Very
Moderate Large
Limited
End of License Raj has opened many business opportunities for entrepreneur
Multiple sources of fund raising at various stage of business has been of tremendous
help
In a developing economy like India, multiple sectors provide opportunities for growth
Thus, emerging sectors are true reflection of entrepreneurial spirit, new opportunities
Niche focus & ability to attract talent Emerging Sectors start small –
Source: www.bseindia.com, 5th August 2010 , Index Market Cap Range given implies companies with the smallest market cap and largest market cap in that particular
indices respectively as on August 5, 2010. Small Cap stocks for the purpose of the Reliance Small Cap Fund are stocks whose market capitalization is in between the
highest and lowest market capitalization of companies on BSE Small Cap Index
The Indian Small Cap Opportunity
Performance Over The Last 2 Years (31st July 08 - 30th July 10) Valuation As On 31st July 2010
Outperformance of Index P/E Price To Book Value
Index CAGR (%) BSE SMALL CAP
Relative To Indices S&P CNX Nifty 22.31 3.78
S&P CNX Nifty 11.32 5.00 BSE SENSEX 21.20 3.40
BSE SENSEX 11.58 4.74 BSE MIDCAP 19.24 2.90
BSE MIDCAP 15.37 0.95 BSE SMALL CAP 15.66 2.34
BSE SMALL CAP 16.32
Source : www.bseindia.com, Capitaline Neo as on 6th August 2010
Small Caps are still available at better valuations compared to Large Caps
Examples of how Small Cap companies have emerged
as Large Cap companies over a period of time
creating wealth for the shareholders
The companies chosen herein are purely for illustrative purpose only
Reliance Mutual Fund or Reliance Small Cap Fund may or may not invest in the shares of these companies
The investment decision of Reliance Mutual Fund to invest in any company is based on several factors including
research, market potential, future outlook etc
Retailing
Market Capitalization Market Capitalization
Outperformance relative to
(July 30th 2001) (July 30th 2010)
Company Name BSESENSEX
(Rs. Cr) (Rs. Cr) (July 30th 2001- July 30th 2010)
PAT
Rs.140.58 Crs
(30th June 2009)
s
i me
y 22 T
as ed B
I ncre
PAT
Rs.6.40 Crs
(30th June 2001)
PAT
Rs.1,195.53 Crs
s
88 Ti m e (31st March 2009)
re as ed By
I nc
PAT
Rs.13.57 Crs
(31st March 2003)
PAT
s Rs.140.33 Crs
0 T im e
d By 1 (31st March 2009)
ease
In c r
PAT
Rs.14.00 Crs
(31st March 2006)
PAT
es Rs.130.03 Crs
ed B y 4 Tim
Increas (31st March 2010)
PAT
Rs.30.92 Crs
(31st March 2002)
PAT
s Rs.46.71 Crs
49 Time
as e d By (31st March 2010)
Incre
PAT
Rs.0.94 Crs
(31st March 2003)
Small cap stocks, for the purpose of the fund are defined as stocks whose market
capitalization is in between the highest & lowest market capitalization of companies
on BSE Small Cap Index
* Please refer detailed asset allocation on slide no 29. Market Capitalization: Market value of the listed company, which is
calculated by multiplying its current market price by number of its shares outstanding
Positioning Of Reliance Small Cap Fund
Returns
Reliance Small
High
Risk Cap Fund
Medium
Low
A relatively high risk/high return oriented fund characterized by volatility which will get
smoothened out over long term investment horizon
Reliance Small Cap Fund will be a vital part of an investor’s core portfolio that aims to
create an alpha for their investments
Scheme Features
The primary investment objective of the scheme is to generate long term capital
appreciation by investing predominantly in equity and equity related instruments of
Investment Objective small cap companies and the secondary objective is to generate consistent
returns by investing in debt and money market securities
Equity & equity related securities of small cap companies including derivatives# -
65%-100%
Equity & equity related securities of any other companies including derivatives# -
Proposed Asset 0%-35%
Allocation Debt & Money Market Securities **(including investments in securitised debt)
- 0% - 35%
** including securitised debt up to 30%
# The Scheme proposes to invest at least 65% of the corpus in Equity & equity related instruments of small
cap companies which may go upto 100% of the corpus. The investment in Equity & equity related instruments
of any other companies other than small cap companies will be in the range of 0-35% of the corpus