HDFC Portfolio Management Services

Portfolio Manager: HDFC Asset Management Company Limited

Namaste India

Portfolio Manager: HDFC Asset Management Company Limited

India – Economic Prospects

Accelerating GDP Growth

Decadal GDP Growth Rate has been rising since
the 50’s, currently over 7%.

Source: Govt. of India - Economic Survey

Young India
51% of the Indian population is below 25 years of age
By 2015, the net addition to the productive population
(25-44 years) will be 90m, 1/3rd of USA’s current
population or five new Australia's

Source: UN, IMF, World Bank Morgan Stanley Research

Portfolio Manager: HDFC Asset Management Company Limited

 India – Economic Prospects

Rising Household Income Low Household Debt

USA

Japan

Korea

Taiwan

Malaysia

Thailand

India

0% 20% 40% 60% 80% 100%

Household Debt as % of GDP

Portfolio Manager: HDFC Asset Management Company Limited

 India – Economic Prospects
Strong consumption growth prospects
Per Capita consumption (US$) India China Indoneasia Brazil Germany USA
Oral care 0.6 1.4 1.5 10.0 18.5 18.9
Tea 0.8 0.4 2.4 1.0 11.9 5.5
Detergents 1.4 2.2 1.9 12.1 16.6 22.9
Shampoo 0.3 1.0 1.0 6.0 7.5 6.7
Skin care 0.3 3.2 0.8 12.2 36.6 26.9
Car Penetration (per '000 people)

G e rm a n y 519
UK 500
USA 456
Japan 438
M a la y s ia 200
S o u th K o re a 188
M e x ic o 120
S o u t h A f r ic a 101
B r a z il 86
C h in a 11
I n d ia 8

0 100 200 300 400 500 600

Source ML & CLSA

Portfolio Manager: HDFC Asset Management Company Limited

 India – Economic Prospects
Large Investment needs
(K g ) C e m e n t c o n s u m p tio n p e r c a p ita ( K g )
1 ,4 0 0
1 ,2 0 0
1 ,0 0 0
800
Low per capital Cement 600
400
200
-
consumption

Egypt
South

Itlay

India
USA
Spain

Japan

Mexico

Russia
Iran

France
Thailand

Vietnam

Brazil
Malaysia
Korea

Arabia

China

Turkey

Indoneasia
Germany
Saudi
KWhr per capita
Consumption of Electric Energy per Capita
10,000 8,795

Low per capital Energy 8,000

6,000

consumption 4,000
1,841 2,043 2,227
2,701
1,684
2,000
618 478
160 M o b ile p e n e tr a tio n ( % )
140 -
S in g
HK OEC D Middle C hina Latin Asia India Africa World
120
Mal
Thai T a iw a n
C ountries East America Average
100
K o re a
80 P h il

60 Indo
C h in a
40
20
I n d ia
G D P p e r c a p ita
Low mobile penetration to GDP
0 (U S $ )
- 5 ,0 0 0
1 0 ,0 0 0 1 5 ,0 0 0 2 0 ,0 0 0 2 5 ,0 0 0 3 0 ,0 0 0 3 5 ,0 0 0

Source: CLSA

Portfolio Manager: HDFC Asset Management Company Limited

 India – Economic Prospects
900.0 45.0%

Robust Banking System 800.0

700.0
40.0%

35.0%

- ROEs around 16% 600.0 30.0%

- Capital Adequacy levels are healthy as per Basel –II 500.0 25.0%

norms (12-14% for most banks) 400.0 20.0%

- Negligible exposure to toxic assets due to 300.0 15.0%

domestic focus 200.0 10.0%

- Gross NPAs including restructured assets is 100.0 5.0%

0.0 0.0%
around 5%; Net NPA’s ~1% FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

Deposits ($bn) Bank credit ($bn) % credit growth yoy % deposit growth yoy

Robust Stock Markets

- 100% paperless transactions (demat), T+2 settlement system
- Average daily turnover of USD 20bn
- Average commissions in cash markets of 10bps and 3bps in F&O
- Around 150 stocks in which futures and options are available
- FIIs own more than 15% of India’s market capitalization. Domestic institutions hold around 11%

Source:: BSE, NSE websites, Internal Estimates

Portfolio Manager: HDFC Asset Management Company Limited

 India – Economic Prospects
Details of existing Natural Resources of India
Rich Natural Resources Bauxite Iron Ore Coal Zinc
Indian Reserves(MT) 3,290 25,000 92,000 28
India is amongst the lowest cost World Reserves(MT) 32000 370,000 909,000 490
producer of metals- esp. Zinc, Iron and Indian reserves as a % of global reserves 10% 7% 10% 3%
Aluminum Global Rank 6th 4th 4th 6th
Production 2010(MT) E 18 200 510 1
Mine life@2006 Production in years 183 125 180 28

Share of
Rank
World
Total Ce re als 11.1 Third
Wheat 11.7 Second
Rice (Paddy) 22.3 Second
India is the second largest producer of Total Puls e s 21.2 Firs t
wheat, rice, groundnut and onions and Ground Nut 17.1 Second
Vegetables & Melons 9.7 Second
the largest producer of pulses Fruits excluding Melons 10.5 Second
Potatoes 8.1 Third
Onion (Dry) 10.6 Second

Source: NIC

Portfolio Manager: HDFC Asset Management Company Limited

 Impact of global slowdown on Indian
economy

Fall in Commodity prices benefits India

Pearls
Other precious &
Gems & m a nufa c ture d
Softw are Gold &
22% Agriculture & Silver Semi prec.
Jew llery go o ds
Stones
Allied prd 7% Other non -
14% 4% 5%
9% POL items
Capital
27%
Readymade Goods
Garments 18%
Ores & Other
5% Chemicals &
Minerals Commodities
related
Textiles 4% products 3%
5% 11%
Other Net Oil
Leather & Imports
Chemicals & Leather Manf. Commodities
Engineering Textiles ( Food & 26%
related prd 4%
Goods 2% incl. RMG) related items
22% 9% 2%
1%

FY09 Exports composition (USD 200bn) FY09 Imports composition (USD 268bn)

Source: CITI, N.A.

Portfolio Manager: HDFC Asset Management Company Limited

 Economic Growth Outlook

FY08-09, 09-10 are years of a relatively moderate growth (GDP

growth of 6.7% & 7.2% respectively) on account of impact of
global slowdown (although moderated by Govt. fiscal stimulus)

Economic growth should accelerate from FY10-11 onwards

Exports should stop de-growing
Roads/Power to see unprecedented investments
Power: 50,000 MW of capacity to be commissioned by FY 2012 on a base
of 150,000 MW
Roads: USD 20bn worth projects to be awarded by June 2010
Consumption is growing at a steady pace

Portfolio Manager: HDFC Asset Management Company Limited

HDFC Asset Management Company Limited
(HDFC AMC)

Portfolio Manager: HDFC Asset Management Company Limited

 HDFC Asset Management Company Limited
40% owned by Standard Life
Investments Ltd (An Investment 60% owned by HDFC Ltd.
Management Company under Standard Life Plc.) HDFC is one of the most respected
- The Standard Life Group was 40%
financial services group in India
established in 1825 and has 60%
considerable experience in global
financial markets.

CRISIL – Fund House Level - 1 Rating*

This is its highest Fund Governance and Process Quality Rating. The
rating reflects the highest governance levels and fund management
practices at HDFC AMC.

*Past performance is no guarantee of future results. Please refer Rating Methodology & Disclaimer
for the Rating.

Portfolio Manager: HDFC Asset Management Company Limited

HDFC Portfolio Management Services

Portfolio Manager: HDFC Asset Management Company Limited

 Investment Philosophy
Invest in companies that have a strong
competitive advantage over their peers

Stress on analysis of
individual companies
Invest when prices
and not on
are Wealth
predicting movement
Attractive Creation of stock market
indices

Buy high quality companies at reasonable prices &

reasonably attractive companies at below-average
prices.

Portfolio Manager: HDFC Asset Management Company Limited

 Investment Principles

Minimize Capital Losses Greater emphasis on

price of purchase

Focus on identifying strong Ignore short term

investment companies volatility

Low levels of trading

Invest for the long term
activity

Portfolio Manager: HDFC Asset Management Company Limited

 Investment Process

dfjsldfj
Adding value through active management

Team approach, coupled with talented individuals

Investment Discipline Risk Management

Long term focus, but understand short term drivers

Robust investment process

Portfolio Manager: HDFC Asset Management Company Limited

 Qualities we look for in a company

Proven track record

Competent and honest management

Strong presence in its own industry (preferably No.1 or No.2)

Strong efficiency indicators such as higher sales/capital, improving
ROCE etc.

Free Cash Flow generation

Proven ability of management to successfully introduce new products

Strong balance sheet

Significant competitive advantage that would make it difficult for its
peers to dislodge the company

Good prospects over the next few years

Price that affords a reasonable margin of safety

Portfolio Manager: HDFC Asset Management Company Limited

 When do we Sell?

Price has gone beyond what is warranted by fundamentals

Fundamentals of the business have deteriorated/Original

assumptions with which the stock was purchased are no longer
valid

Another stock with similar characteristics but with more

attractive valuations has appeared on the horizon

Another stock with similar or better valuations but with more

attractive fundamentals has appeared on the horizon

Reducing exposure in a stock

Portfolio Manager: HDFC Asset Management Company Limited

 Portfolio Characteristics

Exposure limits under normal circumstances

To a single stock 1.5% to 15%

To a sector / industry 30%

Portfolio will consist of four un-correlated sectors.

A portfolio of approx. 15 to 20 high quality stocks

Rigorous company analysis guided by fundamentals of the stock

Growth available at reasonable valuation

Discounted asset value compared to enterprise value

Portfolio Manager: HDFC Asset Management Company Limited

 Disclosures on www.hdfcfund.com*

Detailed Portfolio on weekly basis

Value of the portfolio on daily basis

Other reports – P&L, Balance Sheet, Capital Gains

Statement, etc.

* Please note that information on the website is restricted to existing clients of HDFC Portfolio Management Services

Portfolio Manager: HDFC Asset Management Company Limited

 Minimum Funds & Fees Payable

Minimum Funds – Rs.25 Lacs

Portfolio Management Fee

– 2.75% p.a.* of daily average assets under management

OR
– 1.75% p.a* of daily average assets under management plus
20% of gains in excess of 10% per annum

Exit Fees:

- Upto 12 months – 3%
- More than 12 months and upto 24 months – 2%
- More than 24 months – Nil

* Plus Applicable Service Tax

Portfolio Manager: HDFC Asset Management Company Limited

 Purpose of Client Documentation

PMS Client Registration Form- to ‘Know your Customer’

Execution of Discretionary Portfolio Management Services Agreement –

for availing of HDFC PMS

Bank and Depository Account opening forms – to open separate and

individual bank and depository accounts for each client

Power of Attorney – to be issued by client in favour of HDFC AMC to

operate the bank and depository accounts on behalf of the client

Disclosure Document – to understand HDFC AMC as Portfolio

Manager and its services

Portfolio Manager: HDFC Asset Management Company Limited

 Risk Factors

Securities investments are subject to market risks and there can be no

assurance or guarantee that the objectives will be achieved

Investment in securities, the value of the portfolio under management

may go up or down depending upon various factors and forces affecting
the capital markets

Investors in PMS are not being offered any guaranteed / assured returns

Each client is advised to consult his / her own Financial Advisor /

professional tax advisors before availing of PMS

Portfolio Manager: HDFC Asset Management Company Limited

•Portfolio Manager: HDFC Asset Management Company Limited (“HDFC AMC”)
•Registered Office: Ramon House, 3rd Floor, H. T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai – 400 020.

Disclaimer: None of the information contained herein constitutes, or is intended to constitute a recommendation of any particular security or trading
strategy or a determination that any security or trading strategy is suitable for any specific investor. The statements contained herein may include
statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and
unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such
statements.
•The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should be relied upon as
such. The opinions, figures and other charts, etc. are sourced from publicly available information, other sources like CLSA reports, National Readership
Survey, etc. and as mentioned on the relevant slides, in house research and/or are just internal interpretation/analysis of reports/data sourced from the
aforesaid sources. Neither HDFC Asset Management Company Limited, nor any person connected with it, accepts any liability arising from the use of
this document. The recipient of this material should rely on their investigations and take their own professional advice. Opinions expressed are our
current opinions as of the date of appearing on this material only. No part of this material may be duplicated in any form and/or redistributed without
HDFC Asset Management Company Limited’s prior written consent.
RATING METHODOLOGY & DISCLAIMER FOR THE rating :

CRISIL FUND GOVERNANCE & PROCESS QUALITY RATING

Core to the methodology is an interaction with all key personnel associated with the fund house - viz., the top management, the operating heads, the
trustees, the representatives of the distributors and investors, etc.
CRISIL's Fund Governance and Process Quality Ratings (FGP) methodology and the parameters considered therein are depicted below:

Organization Structure · Quality and Commitment of owners/sponsors

Quality of executive management
· Role and effectiveness of trustees and board,
· Financial strength

Investment Decision-making Process and Performance · Investment processes

· Quality of the investment team
·Quality of in-house research
· Dealing operations

Portfolio Manager: HDFC Asset Management Company Limited

 Operational Policies and Efficiencies · Back office processes
· Accounting practices,
· Audit committees
· Presence of quality Management Information Systems (MIS)

Risk Management · Risk Organisation

· Tools and Practice

Selling & Client Servicing Practices · Strong marketing & distribution and good selling practices
· Client Servicing
· Disclosure practices
· Interactions with representatives of distributors and investors
The CRISIL FGP Rating methodology is a globally unique model, which appropriately provides a relative measure as to where the AMC stands
compared to industry and global best practices.
Disclaimer - CRISIL Fund Governance & Process Quality Rating (FGP) reflects CRISIL's current opinion of the AMC's governance and process quality.
The rating of CRISIL is not an opinion of the AMC's willingness or ability to make timely payments to the investor. The rating is also not an opinion on
the stability of the NAVs of the funds under the management of this AMC, which could vary with market developments. A CRISIL rating is not a
recommendation to buy / sell/ hold the units of various schemes of the AMC. CRISIL ratings are based on the current information provided to CRISIL
by the AMC or obtained by CRISIL from sources it considers reliable and is under surveillance. CRISIL may revise, suspend or withdraw a rating as a
result of new information or changes in circumstances or unavailability of information. CRISIL is not responsible for any errors in transmission and
especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this rating.

•Risk Factors: Securities investments are subject to market risks and there can be no assurance or guarantee that the objectives will be achieved. As with
any investment in securities, the Value of the portfolio under management may go up or down depending on the various factors and forces affecting the
capital market. Past performance of the Portfolio Manager is not an indication of the future performance of the Portfolio Manager. Investors in the PMS
are not being offered any guaranteed/assured returns. Please call any of the Investor Service Centres (ISCs) and obtain a copy of the Disclosure
Document and read the same carefully before executing the PMS agreement. In view of the individual nature of tax consequences, each client is advised to
consult his / her own professional tax advisor.
•Statutory Details: HDFC Asset Management Company Limited has been set-up as a joint venture between Housing Development Finance Corporation
Limited Standard Life Investments, UK. HDFC AMC is registered with Securities & Exchange Board of India as a Portfolio Manager.
•Distribution Restrictions – This material should not be circulated in countries where restrictions exist on soliciting business from potential
clients residing in such countries.

Portfolio Manager: HDFC Asset Management Company Limited

Thank You

Portfolio Manager: HDFC Asset Management Company Limited