Economy: Good days ahead – Detailed Report

India Strategy | Good days ahead

Please refer to our India Politics

thematic “Mandate 2014 - Vol 6” for

detail discussion dated 18 May 2014

1. India to see a majority government after three decades

Decisive mandate to BJP for development and good governance

India has decisively voted BJP-led NDA to power at the center. BJP won its highest

ever 282 seats (10 seats more than the requirement for absolute majority). Its allies

contributed an additional 54 seats to the NDA seat tally of 336 seats.

Looking at the enormity of the mandate given to BJP and its allies, it does not look

like a mandate only to improve governance and bring development, but a mandate

to reset the India story for a new direction. The mandate, which cuts across class,

caste, religion and geographies, is clearly indicating that the society has voted for a

change of a new degree. NDA has caught voters’ imagination by promising better

economic growth, increased job, controlled pricing and good governance. For the

first time, vote share of BJP exceeded that of Congress. An absolute majority has

given the party a clean slate to re-write the India story for the first time in 30 years.

First single party majority in 30 years

BJP

Congress

AIADMK

AITA

282

BJD

SHS

TDP

TRS

Others

Vote share by parties, 2014 (%)

17.2

1.1

1.7

1.9

2.0

2.5

3.0

3.2

3.3

3.4

3.8 4.1

31.0

BJP

Congress

BSP

AITC

CPM

AIADMK

Ind.

TDP

YSRC

AAP

Shiv Sena

DMK

NOTA

Others

19.3

Source: Election Commission, MOSL

India has not seen a majority government since Congress’ government in 1984 (414

seats), which itself was elected on the back of a sympathy wave generated by Indira

Gandhi’s assassination. A single party getting majority also marks a reversal of the

coalition era in Indian politics.

Single party majority, first time since 1984

Seats won

364 371 361

283

404

352

295

232

197

161

182 182

146

206

353

282

Half-way mark

BJP exceeds Congress vote share

Congress vote share (%)

BJP vote share (%)

Source: Election Commission, MOSL

Given the majority, BJP will be free to make laws and take decisions which it deems

fit without wasting time and energy in building consensus and negotiating with the

19 May 2014

India Strategy | Good days ahead

alliance partners. This belief is also supported by the lack of any ‘official’ opposition

party in the 16th Lok Sabha, as the Congress tally of 46 seats fall short of the

requirement of one-tenth of total (55 seats) to qualify as an opposition party.

(Please

refer to our India Politics, Mandate 2014|Vol 6 for detailed analysis of 2014 general

election result).

Narendra Modi will be the second serving Chief Minister of a state to become Prime

minister of India post HD Deve Gowda. Markets look forward to an encore of his

economic performance as four-time chief minister of Gujarat at the national level.

19 May 2014

India Strategy | Good days ahead

2. Change in management does matter

History of outperformance by corporate India is replicable at government level

Change in management and its impact on underlying performance is as relevant to

politics and overall economy as it is to a company or business. Changes in senior

leadership of company management brings about change in goals, direction of the

company – positive or negative. This has been evident in India Inc which has

witnessed senior management changes in past decade (like TCS, Axis Bank, Indusind

Bank, etc), which was followed by strong returns and significant outperformance by

the company. Such examples abound in India and globally.



P J Nayak

took over as MD of Axis Bank in Jan 2000. Since then, the stock has

delivered annualized returns of ~32%.

Romesh Sobti

took over as CEO of Indusind Bank in Feb 2008. Since then, the

stock has provided annualized returns of ~50%.

N Chandresekaran

took over reins at TCS in October 2009. Since then, the stock

has provided annualized returns of ~32%.

Bhaskar Bhat

took over as MD of Titan in April 2002. Since then, the stock has

delivered annualized returns of ~46%.

Punit Goenka

took over as MD of Zee in Oct 2009. Since then, the stock has

provided annualized returns of ~21%.

Change in management #2: IndusInd Bank

600

450

CAGR: 32%

Price (INR)

Sensex Index Rebased

562

Change in management #1: Axis Bank

Price (INR)

1,400

1,050

700

350

P J Nayak

took over as MD in Jan 2000

CAGR: 48%

781

Sensex Index Rebased

Romesh Sobti

took over as CEO in Feb 2008

300

150

148

Source: Bloomberg, Company, MOSL

Change in management #3: TCS

Price (INR)

2,600

2,000

1,400

800

200

N Chandrasekaran

took over as CEO in Oct -09

CAGR: 31%

1,044

2158

Sector Index Rebased

Source: Bloomberg, Company, MOSL

19 May 2014

India Strategy | Good days ahead

Change in management #4: Titan

Price (INR)

340

255

170

CAGR: 45%

Sensex Index Rebased

307

300

225

150

CAGR: 21%

Change in management #5: Zee

Price (INR)

Sensex Index Rebased

273

198

Bhaskar Bhat

took over as MD in Apr-02

Punit Goenka

took over as MD

in Oct-09

Source: Bloomberg, Company, MOSL

Similarly, we believe a change in the Indian government, which under UPA regime

was marked by poor governance, wide-spread corruption and policy paralysis bodes

well for the market. Narendra Modi has won the mandate on back of his

performance as Chief Minister of Gujarat. Capital market and corporate India have

built huge expectation on the back of a clear majority to BJP and expects Mr Modi to

repeat his performance in Gujarat at the national level.

Nifty outperforms EM on hope of Narendra Modi government

Nifty Index

8,000

6,500

5,000

3,500

2,000

CAGR Dec-07-10:

Nifty: 0%

MSCI EM: -2.6%

CAGR Dec-10 to July13:

Nifty: -4.2%

MSCI EM: -7.7%

MSCI EM Index - RHS

1,400

1,150

Hope of

900

Modi govt

starts leading

to market

650

gains:

Nifty: 32%

MSCI EM: 11%

400

Source: Bloomberg, MOSL

India Inc is looking forward

to an even better

performance by NDA 2.0,

considering the absolute

majority it enjoys in the

Lower House of Parliament.

Expectation of better performance from NDA emanate from a pro-market stance of

NDA 1.0 (1998-2004). Following are the 10 big-bang sector initiatives which the NDA

government undertook during its previous stint that subsequently paved the way for

a new growth pattern

(Refer to Annexure-I for detailed discussion on big-bang initiatives

taken by NDA during 1998-2004 in our India Politics, Mandate 2014 series).

India Inc is

looking forward to an even better performance by NDA 2.0, considering the

absolute majority it enjoys in the Lower House of Parliament.

Highways:

Golden Quadrilateral changed the way India travels and transports

goods.

Airports:

Decks cleared for privatization of New Delhi and Mumbai airports.

Power:

A milestone development of Electricity Act 2003 enacted.

19 May 2014

India Strategy | Good days ahead

Banking, Infrastructure,

Power, Highways, Telecom,

Tourism are some of the

sectors which saw reforms

in NDA 1.0 regime

Telecom:

Brought the New Telecom Policy 1999 (NTP-99) which allowed

licensees to migrate from a Fixed Licence Fee Regime to a Revenue Share

arrangement.

Disinvestment and PSUs:

NDA government gave a fillip to the privatization

process with the first strategic sale.

Banking:

NPA norms were tightened, Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 was

introduced, Corporate Debt Restructuring (CDR) was introduced and measures

were initiated for the establishment of a Credit Information Bureau (India) Ltd.

Energy security:

Waiting period for LPG connection reduced from the earlier

four to five years. Smaller 5kg sized cylinder introduced for the benefit of hilly

regions and economically weaker sections. Government decided to build 5mt of

strategic oil reserve. Contracts for eight coal bed methane gas blocks signed.

Tourism:

A new Tourism Policy was adopted to position India as a global brand

and to create integrated tourism circuits.

FRBM Act:

The Fiscal Responsibility and Budget Management Act, 2003

(FRBMA) was enacted to reduce the fiscal deficit within 3% of GDP by 2008.

10.

And the nuclear bomb!

NDA conducted the nuclear bomb tests followed by

more peace initiatives - no first use, no use against non-nuclear countries, etc.

19 May 2014

India Strategy | Good days ahead

3. Economy: Good days ahead

Development focus of the government to revert the economy to its mean growth



Growth revival needs to receive the attention of the new government with the

current growth rate of 4.8% well below the long-term average of 7%.

Industrial downturn for the last three years, particularly that of Capital goods

dragged other sectors and overall GDP growth down.

As a first measure, Government needs to nudge the existing projects under

implementation towards completion. This has already seen some momentum in

the last 18 months of UPA government.

Revival of industry is expected to give a fillip to the cyclical part of the services

sector viz., trade, hotels, transport & communication services as well as banking

and financial services.

These measures can help growth revive from 4.6% in FY14 to 5.5% in FY15 and

further to 6.5%+ during FY16 and FY17.

A push to the projects under implementation would help

revive investment cycle

New + Revived - dropped

Increase in under implementation projects

7,500

5,000

2,500

-2,500

The plunge of IIP, particularly capital goods is responsible

for GDP growth bottoming out

-2

IIP

IIP-Capital goods (RHS)

-10

Source: CMIE, MOSL

Source: CSO, MOSL

Service sector, especially trade and transport too

would revive on industrial upturn

Trd, htls, trnsprt, comm.

Cmmnty, socal srvces

Financ, insr, real estate

Services

This may help GDP growth to revive closer to its

long-term mean of 7% by FY16

GDP growth

Long-term

mean 7%

Expect growth to

revive to 6.5%+

and more by FY17

Source: CMIE, MOSL



Source: CSO, MOSL

On the inflation front, RBI has maintained a target monetary policy. It’s time for

the Government to step in.

A few measures on the fiscal front (lower MSP hike and procurement) and some

administrative measures (APMC reform and revamp of FCI) are needed to

19 May 2014

India Strategy | Good days ahead



address the critical food inflation issue that would, in turn, help CPI correct to its

long-term average of 7.1%.

On the other hand, WPI is already below its long-term average of 6.1% and a

stronger INR and benign international prices are likely to allow it to remain so

for the near future.

WPI already corrected below its long-term mean and may

stay so with INR hardening helping manufacturing inflation

WPI

WPI-Manufacturing

Fiscal and administrative measure can help cool off

food inflation, in turn keeping overall CPI inflation low

CPI Inflation

Long-term mean

7.1% (7.2% for Food)

CPI Food Inflation

Long-term mean

6.1% (4.4% for Mfg)

Source: Government, MOSL



Source: Government, MOSL



Flows, both in the nature of debt and equity, have revived in recent times on the

back of improved CAD and business sentiments. This has led to the RBI resuming

built up of forex reserves.

However, RBI may find it difficult to absorb all the excess capital flows and the

resultant appreciation of INR on a reversal of expectations.

Thus INR, which has nearly corrected back to its par value as measured by REER

may overcorrect to its long-term average REER value of 105. We now model INR

to correct to 58/USD in FY15 and further to 57/USD in FY16.

Despite RBI intervention, INR may overcorrect to

its long-term REER

400

300

200

100

REER (RHS)

INR/USD

Long-term

REER 105

122

114

106

Resumption of capital flows can help RBI build up

the forex reserves once again

Net capital flows

120

Forex reserves (RHS)

Source: RBI, MOSL



Source: RBI, MOSL

Government needs to walk the tight path of fiscal rectitude while at the same

time would need to improve the quality of fiscal accounting.

With the petroleum sector reform on its logical course correction every month,

addressing fertilizer and other subsidies would constitute a major component of

reprioritizing government expenditure.

19 May 2014

India Strategy | Good days ahead



We would monitor the progress of Government measures with regard to the

above and also expect RBI to finally embark upon lowering rates, once food and

CPI inflation subsides and external sector concerns recede.

Finally we expect RBI to move towards normalisation

of rates as food inflation and CPI subsides

Repo

Reverse repo

MSF

Government need to walk the fiscal tight-rope; FY17 deficit

expected close to the best ever

Fiscal deficit to GDP

Long-term

average 4.8%

Source: RBI, MOSL

19 May 2014

India Strategy | Good days ahead

4. Evaluating the ‘Market Troika’!

Markets returns are a function of three pillars – Earnings, valuations and flows

I. Earnings



The phase of FY04-FY10 saw the GDP growth rate increasing from 4% to 7%+

and corporate profits increasing by ~19%. However, slowdown in GDP growth

and complete breakdown in the investment cycle saw corporate profits falling to

3% CAGR during FY10-FY14. Corporate profits as a percentage of GDP collapsed

from 7.8% in FY08 to ~4.2% in FY14E.



The fall in corporate profitability was primarily led by domestic cyclicals like PSU

Financials, Capital Goods, Cement and Real Estate with low growth rates during

FY10-FY14. PAT growth for Metals dipped from 19% in FY04-FY10 to single-digit

growth during FY10-FY14. PSU Banks with asset-quality issues and lower NIIs

saw PAT growth rates falling from 16% CAGR in FY04-FY10 to merely 1% in FY10-

FY14.



On the other hand, Consumer and Healthcare saw low double-digit growth rates

in FY04-FY10, however, they recorded higher growth during FY10-FY14.

Technology growth rate was also healthy during both the cycles.



Aided by an economic uptick, our bottom-up estimate of Sensex earnings is 16%

CAGR over FY15-FY16 driven by recovery in earnings of capital goods, metals

and healthy growth for financials. Corporate profits as a percentage of GDP is

likely to revert to the mean of 5.6% by FY18, implying a PAT CAGR of 22% over

the next 4 years.

Cyclicals: PAT CAGR (%) show a stark variation in two periods

FY04-10

FY10-14

FY14-16E

Defensives: PAT CAGR (%) are higher during downcycles

FY04-10

FY10-14

FY14-16E

-7

Real Estate

16 10

-3

Capital

Goods

Metals

PSU Banks

Utilities

Consumer

Healthcare

Technology

Source: Company, MOSL

Corporate profits to GDP likely to revert to mean

7.8

5.6

Avg of 5.6%

6.5 6.2

4.7 4.4

Source: Company, MOSL

Market cap to GDP below mean

103

Average of 72%

for the period

7.3

4.7

3.0

5.4

6.3

Profit CAGR

FY14-18 of 22%

4.2 4.3 4.6

5.0 5.6

Source: Company, MOSL

19 May 2014

Source:Bloomberg, MOSL

India Strategy | Good days ahead

II. Valuations and Sensex sensitivity



Corporate sector earnings are expected to grow at 16% CAGR over FY14-16. This

will bring the growth rates around long term averages, after growing at 8% for

the last six years.



However, the positive election outcome coupled with a strong majority

government can lead to a more business friendly environment and revival in

domestic demand. This will drive earnings upgrades for Corporate India over the

next few years.



Empirical evidence suggests that market returns mirror corporate earnings

growth. Historically, periods of high growth have always seen above average

valuations, fuelling a bull market.



As earnings growth recovers to ~20% over the next three-four years, valuations

will also tend to trade above average of 15x.

Sensex earnings to grow at 16% CAGR during FY14-FY16

FY14-16E:

16% CAGR

FY08-14:

8% CAGR

FY03-08: 25%

CAGR

FY93-96: 45%

CAGR

FY93-FY14: 14% CAGR

1,802

FY96-03: 1% CAGR

250 266 291 278 280 216 236 272

348

450 523

718

833 820 834

1,525

1,338

1,123 1,184

1,024

129 181

Sensex CAGR 14%

Sensex PE (x)

24.6

Sensex CAGR -1%

Sensex CAGR

39%

24.3

24.6

Sensex CAGR -1%

Avg PE 14.9x

8.3

15.4

Source: Company, Bloomberg, MOSL

19 May 2014

India Strategy | Good days ahead

Sensex sensitivity

EPS CAGR (%)

EPS FY14

15x

18x

20x

Current (15.4x)

15x

18x

20x

2 Year CAGR (%)

1,768

1,925

2,090

Sensex Return (%)

32,082

31,350

37,620

41,800

Nifty sensitivity

1,338

-17

24122

20,067

24,080

26,756

EPS CAGR (%)

EPS FY14

15x

18x

20x

Current (15.2x)

15x

18x

20x

404

-16

7203

6,066

7,279

8,088

Sensex Values

27,139

29,549

26,520

28,875

31,824

34,650

35,360

38,500

2 Year CAGR (%)

535

582

632

Sensex Return (%)

Sensex Values

8,127

8,841

9,600

8,025

8,730

9,480

9,630

10,476

11,376

10,700 11,640

12,640

Source: MOSL

Sensitivity of Sensex returns to 20% CAGR earnings growth at different valuation multiples

Sensex EPS (INR)

2.2

CAGR

YoY(%)

27,033

9.9

15.7

Sensex @15x

16.7

41,550

34,650

22,874

Sensex EPS (INR)

22.6

CAGR

YoY(%)

20.4

22.9

Sensex @18x

22.2

CAGR

YoY (%)

Sensex EPS (INR)

36.2

26.9

27.3

Sensex @20x

25.4

55,400

36,045

46,200

49,860

27,448

32,440

41,580

30,498

1,525

FY15E

1,802

FY16E

2,310

FY17E

2,770

FY18E

1,525

FY15E

1,802

FY16E

2,310

FY17E

2,770

FY18E

1,525

FY15E

1,802

FY16E

2,310

FY17E

2,770

FY18E

Source: MOSL

Cyclicals gave healthy returns during FY03-FY08 cycle

75,000

67,113

Capital Goods

60,000

53,937

Pvt Banks

37,811

Metals

32,108

Utilities

31,379

Oil & Gas

25,034

PSU Banks

20,873

Sensex

19,283

Auto

13,484

Real Estate

11,089

Healthcare

10,684

Consumer

9,905

Technology

CAGR (%)

92%

83%

45,000

30,000

Level of 3,081

15,000

70%

69%

63%

56%

50%

47%

42%

31%

30%

28%

Source: Bloomberg, MOSL

19 May 2014

India Strategy | Good days ahead

Consumer, Auto, Healthcare and Technology were the outperformers during FY08-FY14

75,000

CAGR (%)

60,000

58,018

Consumer

53,097

Auto

50,144 Healthcare

18%

16%

15%

12%

-4%

-6%

-9%

-13%

45,000

Level of 20,873

30,000

42,497 Technology

36,685

Pvt Banks

29,650 PSU Banks

24,122Sensex

16,350 Oil & Gas

13,921Capital Goods

11,162

Telecom

11,842 Metals

8,468

Utilities

15,000

Source: Bloomberg, MOSL

III. Flows



FIIs continue their enthusiasm for emerging markets, especially India, pumping

USD134b in the past 10 years. In fact, FIIs have pumped more money in the past

four years (FY11-FY14 saw USD73b) of slowdown in economy and corporate

profits than the total money pumped in the preceding seven years (FY04-FY10

saw USD61b).



DIIs, on the other hand, contributed positively for seven consecutive years with

inflows of USD46 from FY04-FY10. However, they are sellers from past four

years with cumulative outflows of USD27b.



Empirical evidence suggests that healthy capital flows have always led markets

to newer highs whereas lack of flows coincided with poor market returns.



We believe that with Mr Modi at the helm of affairs, there will be increase in

capital inflows, both from the foreign investors as well as the domestic

investors, going forward.

FIIs continue to exude enthusiasm while domestic investors remain sellers from FY10-FY14

Total

USDb

9.8

FII (USDb)

9.3

14.1

12.1

30.8

2.7

28.4

20.9

7.6

13.1

4.8

DII (USDb)

20.0

30.0

Total Flows: USD107b

FII: USD61b

DII: USD46b

5.1

17.7

23.4

13.1

-10.4

Total Flows: USD46b

FII: USD73b

DII: USD-27b

0.3

9.5

0.1

9.2

3.2

10.9

6.4

5.8

25.0

8.5

-4.1

-0.9

25.8

13.7

-8.9

-12.7

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14 FY15E FY16E

Source: SEBI, MOSL

19 May 2014

India Strategy | Good days ahead

Sensex performance emulates the institution flows over the years

Sensex

Return

(%)

Total Institution Flows (USDb)

-38

-10

Sensex Index

30.8

28.4

22,386

19,445

20.9

13.1

18,836

20.0

30.0

15,644

14.1

9.8

5,591

9.3

12.1

9,709

2.7

7.6

4.8

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E

Source: SEBI, MOSL

Markets have been climbing the ‘Wall of worry’ over last three quarters



At every step in the journey of NDA towards a decisive victory, Indian markets

have climbed several ‘Wall of worry’ ever since the appointment of Narendra

Modi as the Prime Ministerial candidate on Sept 13, 2013.

Investors continued to have apprehensions (‘Wall of worry’) that the markets

have run ahead of fundamentals.

Markets have delivered more than 20% returns in the past eight months since

the first announcement, reaching a life-time high of 24,122.

Wall of worry: Markets continue to scale new highs even as investors remain sceptic

MARKET INDICATORS

WALL OF WORRY

BJP alone gets

majority

BUT BJP does not have

majority in upper house

24,122

Exit polls give

BUT exit polls always

NDA majority

underestimate Congress

Heavy campaigning

by Modi

BUT polarisation of

votes will happen

23,551

22,702

BJP wins assembly

BUT these are only

elections of 4 states

Hindi heartlands

21,326

21,920

Opinion polls accord

BUT opinion polls were

majority to NDA

wrong in 2004 & 2009

19,733

Modi appointed BJP's

BUT there is infighting

PM candidate

within BJP

Source: Bloomberg, MOSL

19 May 2014

India Strategy | Good days ahead

5. Sectors and top picks

Expect wide-spread sectoral reforms; to drive re-rating of stock valuation

The industry and capital market is closely watching government next moves and

actions that are critical to revive economy, and consumer, corporate and investor

confidence in India. We discuss below some eagerly awaited reforms, and sectors

and companies that are likely to benefit from NDA’s efforts to revive the economy.

We believe that a decisive mandate to the new government and the promises made

by government to pursue pro-growth policies bodes well for the market

(Refer to

Annexure-II for detailed analysis of BJP’s pre-election manifesto covered under our India

Politics, Mandate 2014 series).

This, coupled with acceleration in corporate earnings

growth to 16%, justifies a re-rating of the Indian equity markets, in our view.

Growth reversion

Indian markets have delivered a healthy 15% CAGR returns over the past decade

(FY04-FY14). However, the period marked two contrasting cycles – i) upcycle (FY04-

FY10) and ii) downcycle (FY10-14). The upcycle was marked by a healthy GDP growth

of 8.4%, an impressive 21% PAT CAGR of 160 MOSL Universe companies (excl RMs),

and Sensex returns of 21%. On the other hand, during the downcycle, GDP growth

slipped to 6.7%, corporate earnings growth dropped to 12% PAT CAGR and Sensex

delivered a mere 6% return.

Upcycle to begin; to last

longer

Trends emerging from recent quarterly results suggest that the worst may be over in

terms of earnings. We expect a 14% PAT growth for our coverage universe in FY15

and a further 17% PAT growth in FY16. This translates into a 16% PAT CAGR during

FY14-16E for our coverage universe, which indicates initiation of a new up cycle in

corporate earnings and reversion to the average 17% PAT CAGR witnessed in the

last decade. Sensex is currently trading at one-year forward PE of 15.4x and 2.5x PB,

near its 10-year average, but substantially down from 10-year high of 24.6x PE and

4.2x PB, respectively. Importantly, corporate earnings are impacted by margin

pressures in adverse operating leverage and high interest costs. We believe that the

pro-growth policies and reforms undertaken by a stable government are likely to

give further impetus to this new upcycle and drive re-rating of valuations.

19 May 2014

India Strategy | Good days ahead

FY04-14 India Inc PAT performance: Sector-wise highlights

SECTOR

(no. of companies)

Auto (9)

Capital Goods (8)

Cement (12)

Consumer (13)

Financials (31)

Private Banks (10)

PSU Banks (12)

NBFC (9)

Healthcare (14)

Media (8)

Metals (9)

Oil & Gas (13)

Excl. RMs (10)

Real Estate (9)

Retail (3)

Technology (10)

Telecom (4)

Utilities (10)

Others (10)

MOSL (163)

MOSL Excl. RMs (160)

PAT (INR B)

FY04 FY10 FY14E

37 119

279

19 111

46 102

190

207 553

885

35 131

332

134 320

329

37 103

224

146

80 226

305

295 587

797

182 451

706

49 218

489

4 151

106 263

387

878 2,520 3,783

765 2,383 3,692

PAT CAGR (%)

Avg RoE (%)

MOSL Univ. PAT Share (%)

FY16E FY04-10 FY10-14 FY14-16E FY04-10 FY10-14 FY14-16E FY04 FY10 FY14E FY16E

417

138

-3

-10

259

1,201

460

450

292

207

407

938

821

-7

631

139

-17

461

5,038

19.2

10.7

15.4

15 100 100

100

4,922

20.9

11.6

15.5

Source: MOSL, Company

Sectoral valuation across the ten year period 2004-2014

PE (x)

Sector

Auto

Banks - Private

Banks - PSU

NBFC

Capital Goods

Cement

Consumer

Healthcare

Media

Metals

Oil & Gas

Real Estate

Retail

Technology

Telecom

Utilities

Sensex

12.8

14.9

8.7

10.8

25.9

20.2

30.0

21.1

19.0

9.5

11.5

24.8

24.6

15.9

21.7

11.5

15.4

10 Year PE (x)

Max

27.8

30.6

10.6

22.4

43.4

23.6

34.3

28.7

43.0

17.1

20.3

48.4

60.6

25.5

51.1

29.3

24.6

11.9

15.1

7.0

11.3

20.2

13.5

24.3

21.9

21.4

9.4

11.0

21.1

28.8

17.0

22.5

14.4

15.4

6.0

8.1

3.9

4.0

8.3

4.4

14.5

16.0

10.4

3.1

6.9

0.4

8.9

7.7

9.1

2.0

10.2

Prem/Disc to 10 Year (%)

Min Average

7.0

-1.4

23.4

-4.3

27.9

49.1

23.5

-3.5

-11.3

1.0

4.0

17.5

-14.6

-6.2

-3.6

-19.9

-0.2

Max

-54.1

-51.3

-18.6

-51.6

-40.4

-14.7

-12.7

-26.6

-56.0

-44.5

-43.7

-59.4

-37.3

-57.5

-60.6

-37.7

112.7

84.9

120.0

172.1

212.6

358.5

106.1

32.2

81.5

208.3

66.0

176.3

106.3

139.1

485.6

49.9

PB (x)

2.9

2.6

0.9

2.1

3.2

2.2

10.5

4.4

3.8

1.0

1.5

1.0

4.8

4.2

1.8

1.3

2.5

10 Year PB (x)

Max

4.4

3.8

1.9

3.9

11.0

4.5

11.6

6.0

6.4

4.4

2.9

6.9

7.3

8.6

5.6

3.7

4.2

2.9

2.3

1.1

2.2

4.4

2.4

8.3

4.2

3.6

1.8

1.7

1.4

4.3

5.1

2.5

1.7

2.7

1.5

1.0

0.5

0.8

1.6

0.9

4.7

2.3

1.4

0.6

1.1

0.1

1.6

2.2

1.3

0.2

1.6

Prem/Disc to 10 Year (%)

Min Average

-1.8

15.3

-18.5

-1.9

-28.7

-5.9

26.6

3.8

5.8

-41.5

-13.8

-26.6

12.5

-18.2

-26.4

-27.1

-6.0

Max

-33.7

-30.2

-50.5

-46.0

-71.2

-50.8

-9.2

-27.4

-40.8

-76.6

-47.9

-85.5

-33.6

-51.0

-67.4

-66.5

-39.2

Min

98.9

154.8

73.1

182.6

98.3

146.6

124.0

89.0

174.7

75.6

30.2

947.2

201.4

92.8

39.0

413.9

54.1

Current Average

Min Current Average

-48.9 5501.9

Source: MOSL, Company, Bloomberg

19 May 2014

India Strategy | Good days ahead

Sector and top picks

Some beaten down sectors are likely to lead the recovery. These include Oil & Gas driven by energy sector reforms, Capital Goods on the revival of investment cycle, and

Cement, Auto and Financials on the back of impetus to infrastructure growth.

Sectors

Financials

What went wrong?

Key reforms/ changes expected from new government

Key stocks to watch out for



Stubborn inflation and volatility in INR resulted into tight liquidity

conditions and high interest rate.

Moderating economic growth and fall in new investment demand has led

to significant slowdown of loan growth and increase in stress levels in the

system.

Stress loans percentage for PSU Banks increased by 3x+ in last five years.

Unable to raise capital and thus led to serious growth concerns and

eroding valuations



NBFCs

Infrastructure Finance Companies



Fuel shortage impacting the PLF; which is limiting the ability to service

debt.



Stressed financial health of SEBs and mounting debt burden

Asset Finance Companies



Sharp decline in manufacturing, infrastructure, & investment activities,

impacted CV sales



Moreover, freight rates have been on a decline and diesel prices went up,

exerting pressure on profitability of CV financiers.



Projects completed (as a % of projects under implementation) have

touched abysmally low (3.4%), thus impacting the virtuous cycle of cash

flow generation in the system.



Public Private Partnership models in various sectors like roads, railways,

ports, airports, etc. got impacted given weak regulatory and

implementation structures.



Power sector is reeling under pressure of poor demand.



State owned power distribution companies faced mounting losses and

unserviceable debt components.



Two decade low reported deficit.



Excessive fuel shortage impacting plant load factors (PLF) of Coal and Gas

projects

Resolution of bottle-necks created in infrastructure space.

Improvement in State DISCOMs financial health.

Shareholding of GoI in state-owned banks to be brought below 51%.

Access to foreign capital for state-owned banks is capped at 20% as

compared to 74% for private banks. Voting rights capped could be

increased.

Design a new governance structure/HR reforms for PSU banks viz. i) pay

structure of the employees to be in sync with market, variable structure

to be introduced and ii) top management of the banks tenures should be

elongated as short tenures act as an impediment in laying out a well

defined strategy and implementation of the same.

Consolidation among state-owned banks.

Improvement in financial health of SEBs.

Resolution of fuel supply issues.



State Bank of India

ICICI Bank

Axis Bank

Canara Bank

Oriental Bank of

Commerce



Power Finance

Corporation



Reducing the excise rates on commercial vehicles to revive demand.

Improvement in road infrastructure would increase the efficiency of

vehicle and reduce turnaround time.

Massive pick-up in government capex and spend in sectors like roads,

railways, urban infrastructure, oil & gas, and power.

Addressing the last-mile issues in terms of fast -tracking stuck projects.

Cabinet Committee on Investments has already cleared projects worth

~INR20t (equivalent to ~25% of the projects under implementation).

Simplify contentious issues like land acquisition and forest clearances.

Improvement in State DISCOMs financial health.

Augmenting/enabling fuel supply to projects.

Cohesive regulatory framework.

Reliable and wide grid connectivity.



Shriram Transport

Finance

Capital

Goods



L&T

BHEL

Thermax

Power



NTPC

Coal India

Jai Prakash

19 May 2014

India Strategy | Good days ahead

Energy



Auto



Cement

Real

Estate



Oil & Gas PSU companies’ profitability was impacted by high under

recoveries led by non-commensurate retail petroleum price increase.

Problem aggravated by ad-hoc subsidy sharing leading to high debt for

OMC’s and lower oil realization for upstream.

Non-remunerative gas pricing has impacted new capex in E&P.

Weak consumer sentiments on low income growth, high inflation, weak

economic outlook.

High inflation impacting discretionary spending of consumers.

Hike in fuel prices led to increase in ownership costs.

Tight liquidity, higher interest rates and high inflation impacted demand

for urban housing.

Project completion as % of outstanding order is down from 9-12% in FY05-

09 to 2-5% in FY13-14.

Project addition has halved in government sector, and turned negative in

private sector.

Muted demand growth at ~4% CAGR (FY1014) coincided with historic high

capacity addition at ~104mt, resulting in significant drop in utilization

rates.

Tight liquidity, higher interest rates and high inflation impacted housing

demand.

Slowdown in corporate expansion weakened leasing.

Approval hurdles impacted launch plans of developers.

Weak operating cash flow fails to address debt servicing and growth plan

without exerting stress on balance sheet.

Leakage in the distribution revenue due to under-reporting, resulting in

stagnant

consumer

ARPU

and

low

monetization

for

broadcasters/MSOs/DTH operators.



Expect government to continue with ongoing monthly diesel price hikes

leading to full deregulation in next few quarters.

While the new gas price formula is well debated and agreed upon,

expect the notification of same at the earliest.

Revival in capex cycle and consequent improvement in economic activity.

Stability in fuel prices.

Higher employment opportunities, revival in income growth to improve

consumer sentiments.

Kick start investment cycle by creating enabling regulatory framework.

Drive economic recovery leading to moderation in interest rates,

inflation and improvement in consumer sentiments.



ONGC

BPCL



Maruti

Ashok Leyland

TVS Motors

ACC

Dalmia Bharat

Ultratech



Positive economic outlook should revive buying decision.

Corporate expansion plan should resume with kick start of investment

cycle and better growth outlook.

Availability and cost of funding should gradually ease off with general

improvement in liquidity outlook.

Play on operating and financial leverage.

Push towards digitization in phase III and IV markets which account for

~100m out of the total ~140m cable and satellite households in the

country.

Implementation of ‘addressability’ in phase I and II markets where set

top box seeding has already taken place but monetization remains an

issue.



IBREL

DLF

Unitech

Media



Sun TV Network

Dish TV

Source: Company, MOSL

19 May 2014

India Strategy | Good days ahead

Financials: Banks

State Bank of India

Most leveraged play on

economic recovery and

growth reforms



Cyclicality impacted performance; best placed for economic recovery

Enviable liability franchise (SA ratio of ~35%), strong capitalization (tier I of

10%+) and lowest net stress loans (6.7%) makes SBIN as best placed to benefit

from an upturn in the economic cycle

Cutting of excess flab on Opex and increasing focus on fees to drive earnings

Stock currently trades at discount to LPA. At 25% premium to LPA upside

potentials is 48%, whereas as at peak valuations upside is 121%.

Best placed for recovery; At peak valuation Upside of 121%

2.7

PB (x)

Peak(x)

Avg(x)

2.3

1.1

INR5,350 TP

at peak PB

INR3,560 TP

at LPA PB

Significant pain recognized; Expect return ratios to improve

Net Stress Loans

17.1

14.9

12.7

1.2

16.0

1.4

0.8

0.5

1.8

FY09

6.1

FY10

5.6

FY11

5.4

FY12

5.2

FY13

6.6

FY14

6.1

4.6

1.1

RoE

15.9

10.2

1.0

11.5

1.1

Credit Cost

Min(x)

13.7

1.9

1.1

0.3

1.2

1.0

0.6

FY15E FY16E

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Axis Bank

Problems in key

infrastructure sector to

drive asset quality concerns

lower



Return ratios improved structurally but valuations at below LPA; Improvement

in cycle to drive re-rating as stress perception reduces

Significant improvement in retail business; diversification to help in growth cycle

Capacity in place for growth cycle. Best in class CET 1 of 12.6% and branch

network 2x in last three years

Stock currently trades at discount to LPA. At 25% premium to LPA upside

potentials is 52%, whereas as at peak valuations upside is 93%.

Still trading at discount to LPA; Strong upside potential

Strong performance across cycle

Net Stress Loans

19.1

19.2

19.3 20.3

1.4

1.2

0.8

0.5

2.4

FY09

2.6

FY10

1.6

FY11

2.1

FY12

2.6

FY13

3.1

FY14

2.7

2.5

RoE

18.5

1.1

17.4

Credit Cost

17.2

1.1

17.1

5.0

3.8

2.5

PB (x)

Peak(x)

Avg(x)

4.0

2.0

0.9

Min(x)

INR 4340

TP at peak

P/B

INR 2712

TP at 25%

above LPA

1.0

1.3

0.0

1.8

FY15E FY16E

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Canara Bank



Over last three years profitability of CBK has been impacted significantly (RoA’s

of 0.5% in FY14 v/s 1.3% in FY11) led by 100bp compression in risk adjusted

NIMs. Improvement in asset quality could drive earnings higher.

19 May 2014

India Strategy | Good days ahead

Highly sensitive to interest

rates and economic

recovery



Sensitivity of earnings to risk adjusted NIMs has increased significantly with

every (1) 10bp improvement in NIM and (2) 10bp decline in credit cost, earnings

could see an upgrade of ~15% and ~10% respectively.

Strong loan growth has resulted into faster consumption of capital with CET 1 at

7.4% v/s 8.5% in 1QFY14. Better operating environment and capital markets to

ease fear of low capitalization.

Stock currently trades at discount to LPA. At LPA upside potentials is 83%,

whereas as at 25%+ of LPA valuations upside is 115%.

Significant upside even at LPA

2.2

0.8

1.7

1.2

1.0

0.4

PB (x)

Peak(x)

Avg(x)

1.7

Min(x)

At 25%+ to LPA:

TP is INR778

FY15/16 earnings CAGR of 20%+ post three years of decline

Net Stress Loans

0.9

0.7

22.7

26.8

26.4

0.5

0.6

17.1

2.5

FY09

4.4

FY10

4.6

FY11

4.7

FY12

13.3

8.7

FY13

10.4

8.7

FY14

10.8

8.0

12.9

5.8

0.8

RoE

Credit Cost

0.9

0.6

0.7

0.2

LPA: TP is

INR663

FY15E FY16E

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Oriental Bank of Commerce

Recovery in infrastructure

sector to drive asset quality



Improvement in balance sheet profile and healthy capitalization (Tier I of ~8.9%;

among the best in peers) are key positive for OBC.

Bank has maintained NIM at ~2.8% over last two years (peer banks have

reported a drop of 20/40bp over the same period). Fall in net slippages could

drive NIMs. Every 10bp improvement could raise estimate by 10%.

OBCs share of infrastructure loans to overall loans is at 17%, with 48% of

restructured asset coming from this space. Resolution in infrastructure segment

could significantly ease concerns over asset quality of the bank.

Stock currently trades at. At LPA upside potentials is 51%, whereas as at 25%+ of

LPA valuations upside is 89%.

Better capitalized v/s peers; strong upside potential

PB (x)

2.4

1.05

9.2

0.95

10.3

11.4

Earnings growth to rebound to 20%+ led by lower credit cost

Net Stress Loans

14.8

16.5

17.1

1.04

0.70

0.28 4.5

FY09

1.04

11.5

RoE

1.31

Credit Cost

1.26

Peak(x)

Avg(x)

2.1

Min(x)

At 25%+ to LPA: TP

is of INR567

1.8

1.2

0.6

0.0

0.3

0.9

10.7

0.6

At LPA: TP is of

INR453

6.3

FY10

5.2

FY11

10.6

FY12

9.9

FY13

10.4

FY14

10.0

8.1

FY15E FY16E

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

19 May 2014

India Strategy | Good days ahead

Financials: Non-Banking Financials companies

Shriram Transport

Cyclical improvement in CV

financing to aid growth and

asset quality



Sharp drop in economic growth and regulatory changes led to risk adjustment

margins falling to 5years low and sharp fall in return ratios (ROE down to 16%

from 30% in FY09). Cyclical improvement in CV financing industry to aid growth

and asset quality.

Focus on growing low yielding small CV portfolio to counter the sharp

moderation in MHCV segment and regulatory changes on securitization

impacted margins (down to 6.5% from 8% in FY09). Expect gradual improvement

as the stability on business and regulatory side emerging.

SHTF is well placed to ride the up cycle with niche customer segment, strong

presence in used CV financing and healthy capitalization. Expect gradual

improvement in return ratio. We maintain a Buy with FY16E-based target price

of INR1,015 (2x FY16E P/Consol Book).

SHTF provides 42% upside if it trades at +25% above LPA

Decline in NIMs and increase in credit cost impacted RoEs

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Power Finance Corporation

Leveraged to reform in

power sector; Strong re-

rating candidate



Operating performance of PFC has been strong during the downturn; amidst the

underlying stress in the power segment, the company has managed to generate

steady earnings CAGR of +20% over FY09-FY14.

Return ratios have moved in an upward direction with RoEs expanding from

below 18% in FY09 to +21 in FY14, while RoAs have increased from 2.9% in FY09

to 3.2% in FY14.

Further, expectation of pressure on asset quality led to sharp de-rating in P/B

multiples, which has not played out and asset quality has remained healthy with

GNPA/NNPA of 0.65/0.52% as on 3QFY14.

With new government in place, bottle-necks are expected to be eliminated and

growth is expected to revive. Moreover infrastructure will be the focus area for

new government, especially the time resolution of critical issues relating to fuel

availability and improving health of SEBs. We are upgrading our

recommendation to BUY with a target price of INR 350 assign a multiple of 1.2x

FY16 P/B.

19 May 2014

India Strategy | Good days ahead

Sharp decline in disb. gr. due to slowdown in power sector

POWF provides 51% upside if it trades at LPA

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Capital Goods

L&T: unscathed by economic cycle; new growth levers added

Well positioned to benefit

from most of the new

growth in the next decade



L&T has significantly increased its market share in both domestic (from 1.2-1.5%

of GFCF to 1.8-2% in FY14) and also Middle East (from 0.5% to ~3-3.5% of

project awards). This provides a strong base to capitalize on the next leg of

investment cycle.

L&T is further leveraged to economic recovery, as the possibility of value

unlocking in subsidiaries, particularly the infrastructure concession business

could be meaningful. We estimate possible raising of INR75-80b for L&T over

the next 3 months, comprising of Singapore REIT (INR50b), CPP fund infusion in

L&T IDPL (INR10b) and Dhamra Port (INR14b). This will be an important ROE

trigger.

Manufacturing businesses (like Shipyard, Power BTG, Forgings, Defense etc) also

present interesting possibilities in the longer term.

L&T: Entry into new segments and geographies has led to L&T: Improvement in consolidated ROE is an important

improved order intake (INR B)

trigger for PER re-rating

1,200

900

600

300

Domestic Intake

Overseas Intake

IIP % YoY

0.20

0.15

0.10

0.05

0.00

Consolidated RoE (%)

PE Ratio (x)

Bull case

upside

possibility of

40%, also

supported by

monetizing

infra assets

and improved

business

environment in

manufacturing

subs

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Thermax: Strategic Reorientation

Substantial operating

leverage to drive benefits

from positive structural

trends



TMX is benefiting from structural trends: (1) increased energy pricing driving

demand for efficiency products; (2) Hunt for alternative energy and TMX derives

~30% revenues from Green products (3) stringent government regulations for

environmental compliance.

Management stated that revenues can double without adding meaningful

manpower / capacity, and thus operating leverage is substantial. Cethar Vessels

19 May 2014

India Strategy | Good days ahead



(second largest player in mid-sized IPP segment) is largely closed, and thus

industry structure has further consolidated.

Initial success in TMX-Babcock JV will also lower the subsidiary losses, improving

consolidated ROEs.

TMX: Expect order intake to improve meaningfully driven by TMX: Consolidated ROE expansion to drive re-rating

energy efficiency / IPP segment

Order intake (INR b)

-18

-7

-22

Growth %

P/BV (x) LHS

Consolidated ROE (%)

60%

45%

30%

15%

Bull case

upside

possibility of

35% given

strong

operating

leverage &

improved

performance

of TMX-TBW

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Power

NTPC: Key beneficiary of improved demand outlook, sector re-rating

Higher demand following

economic recovery and

improving financial health

of DISCOMs to drive re-

rating



All-India FY14 demand growth stood at 1% and Coal project PLFs stood at 65%

owing to poor demand from DISCOMs. Economic recovery, improving financial

condiction of DISCOMs would lead to higher demand, consequent higher PLF.

Capacity under construction stands at 20GW+, ~50% growth on FY14 capacity of

43GW.

NTPC’s earnings growth over FY15-17E is strong at 16% CAGR, led by growth in

regulated earnings.

Stock offers dividend yield of 4%, and earnings yield of 10.5% on FY16E basis.

Current valuations are at historic low and re-rating is likely.

NTPC: Key beneficiary of improved demand outlook, sector

re-rating

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

19 May 2014

India Strategy | Good days ahead

Coal India: Set to benefit from focus on improving domestic coal supply

Production ramp-up and

operating leverage to drive

earnings growth



COAL is set to benefit from key agenda of NDA government to ramp-up

domestic production and improve power scenario. We expect production

growth to bounce back to ~6% CAGR.

1 lac workforce for COAL will retire by FY17E, which can drive EBIDTA margin

expansion by ~800bps.

COAL has huge cash reserve of INR600b+. RoE/RoCE for COAL is superior (29/57)

owing to robust business model.

Dividend yield of 5% provides strong comfort. Earnings may see upside led by

operating leverage.

Coal India: Set to benefit from focus on improving domestic

coal supply

700

550

400

250

100

Production (m ton)

Growth (% YoY)

-1

-4

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Jai Prakash Associate (JPA): Best play on economic recovery and de-

leveraging

Leveraged on all counts; To

benefit most as growth

recovers



JPA is best play on economic recovery given presence in Cement, Real Estate

and Power sector.

It has initiated drive to lower leverage and has monetized 2 cement and 2 power

projects to that effect.

Lower leverage and gains from sector with economic recovery should drive re-

rating.

Current valuations are still long term average and higher earnings can aid

valuations.

JPA: Best play on economic recovery and de-leveraging

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

19 May 2014

India Strategy | Good days ahead

Energy

Large earnings increase

from diesel reforms; upside

potential from E&P

BPCL: Top pick in OMCs



BPCL is our top pick among OMCs due to its relatively strong balance sheet,

operational upsides through capacity additions and complexity improvement

and E&P upside potential.

Expect BPCL’s profitability to improve in the medium term led by i) freeing of

working capital and interest cost reduction due to continued diesel hikes -

expect under-recovery to halve by FY16 and ii) likely upside in diesel marketing

margins post deregulation - INR0.5/ltr increase leads to ~20% increase in EPS.

Expect E&P upgrades to continue: BPCL’s Mozambique block has witnessed

substantial resource upgrades from 3-4tcf in 2010 to 50-70+ tcf now. We

currently value BPCL’s E&P portfolio at INR172/sh and expect further upside

from BPCL’s block in SEAL basin in Brazil where reserve estimates are yet to be

announced.

Near term RoE boost through interest cost reduction and higher diesel

marketing margins. Mozambique production start to boost RoE’s significantly

over the long term.

Likely fair value of BPCL would increase to INR747/sh implying 35% upside based

on (a) INR508/sh of core business value at target P/E of 10x, (b) E&P value of

INR172/sh and (c) investment value of INR67/sh (post 25% discount). The stock

trades at 11x FY16E EPS of INR41.9 and 1.0x FY16E adjusted BV.

significantly

just

by Even at higher earnings BPCL’s RoE will be below historical

highs (%)

33.3 33.1

50.8

9.3

BPCL’s earnings could increase

normalization of profitability (INR)

22.7

21.7

5.1

19.8

12.5

11.9 11.1

4.8

5.0

14.9

11.5

14.2

17.0

36.4

6.1

FY14E (EPS)

Lower Interest

Diesel MM New Likely EPS

(WC redn.)

(@INR0.5/ltr)

(INR)

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

ONGC: Gas Price hike to boost near term earnings, subsidy rationalization

to help re-rating

Big earnings growth ahead;

to benefit as re-rating of

PSUs begin



Ongoing diesel reforms (under-recoveries set to halve by FY16), proposed gas

price hike (FY15) and >4% CAGR (FY14-16E) in group production over the next

two years are key positives,

Upside potential to our FY15 gas price assumption:

Scheduled doubling of gas

price to ~USD8.4/mmbtu will boost ONGC’s FY15E EPS by ~30%. We

conservatively model gas price of USD6.3/mmbtu (only 50% pass through) from

FY15 in our base case scenario to factor in likely subsidy towards

Power/Fertilizers. If the full gas price benefit is passed to ONGC, then our FY15E

EPS will further increase by ~16%.

19 May 2014

India Strategy | Good days ahead



Our base case assumes flat absolute subsidy in FY15 v/s FY14 and if the FY15

subsidy were to be similar to FY14 in FY14 then our FY14 EPS will be upgraded

by 30%.

As long term P/E of 9.7x, ONGC fair value could increase to INR515, implying

34% upside. The stock trades at 9.7x FY16E EPS of INR39.6 with an implied

dividend yield of >3%.

Subsidy rationalization and higher gas price hike could result in re-rating of the

stock.

ONGC’s consolidated EPS could increase 64% at rational

Even at long term P/E of 9.7x, ONGC could see 34% upside on

subsidy and gas ~USD8.4/mmbtu

the likely new EPS

Base Case

Subsidy@46%

Net realization (USD/bbl)

16.8%

47.8

28.3

FY13

17.0%

61.8

44.0

31.7

FY14

35.2

FY15

39.6

FY16

21.2%

67.1

7.8

53.1

5.8

Gas@USD8.4/mmbtu

Total

600

450

300

150

ONGC Stock Price (INR)

Stock Price (@15 Yr P/E avg. of 9.7x new EPS)

ONGC 1 Yr Fwd P/E (x)

515

Source: Company, MOSL *Values in shaded grey boxes are for RoE (%)

Source: Bloomberg, Company, MOSL

Auto

Maruti Suzuki

To benefit from

improvement in consumer

sentiments, strengthening

of INR and operating

leverage



MSIL would benefit from i) sharp rebound in volumes driven by consumer

sentiment improvement and product actions, ii) reductions in discounts, iii)

potential strengthening of INR and iv) operating leverage

MSIL’s EPS historically has moved in spurts. We expect EPS to move to a new

range of ~INR150, from current ~INR90, and estimate ~27% CAGR over FY14-16.

The stock should trade at a premium to average PE (14x) for ~26% EPS CAGR

over FY14-16E, with further scope of upgrades.

Building sensitivity for a strong 20% growth in FY17 and INR57/USD, our target

price could upgrade to INR3,880 (upside of 80%), discounting FY17E EPS by 18x.

Maruti Suzuki P/E (x) scenario

150

100

-50

Base

4,800

3,600

2,400

1,200

Bear

Bull

P/E (x)

Maruti Suzuki: Volume and EPS growth (%)

-15

Vol. gr. (%)

EPS gr. (%)

Source: Company, MOSL

19 May 2014

Source: Bloomberg, Company, MOSL

India Strategy | Good days ahead

Ashok Leyland

Best CV play on expected

upcycle in CVs



During the last two major CV cycles, MHCV volumes clocked a CAGR of ~23%

from the bottom of the cycle to the top.

EBITDA during such recovery phases has grown at a faster pace, driven by

margin expansion on operating leverage and enhanced pricing power.

AL is best placed among CV OEMs to play on the expected upcycle in CVs.

Our bull case scenario of 25% volume CAGR over FY14-17 and 10% EBITDA

margin (FY11 margin at 10.7%), provides a potential upside of 90% to INR51.

Ashok Leyland P/E (x) scenario

Base

400

300

200

100

Bear

Bull

PB (x)

8.0

6.0

4.0

2.0

0.0

Ashok Leyland: Volume and EPS growth (%)

Dom. MHCVs ('000 units)

AL: EBITDA margins (%)

IIP Gr. (%)

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Cement

ACC

Pan-India presence and

strong brand makes ACC

one of the best proxies on

recovery cycle



Multiple costs saving levers aid potential upgrade of 20-25% in EBITDA/ton in

CY15-16. This would result in narrowing of profitability gap with large peers and

in turn re-rating of EV/ton.

With strong best balance sheet among peers, ACC offers comforts and growth

avenues.

Valuation offers meaningful upside. Revival in demand with 8%/8%/10% YoY

volume growth in CY14/15/16 should drive margin and re-rate asset valuation.

It offers upside of 47% (Bull case US$170/ton) and 30% (Base case US$150/ton).

Multiple cost savings levers to lower existing profitability gap

Valuation offers meaningful upside (trend in stock price

with peers (INR/ton)

(INR))

250

ACC

UTCEM (ex white)

165

193

ACEM

Gap vs Peers

Base

2000

1600

1200

Bear

Bull

US$100

800

400

-3

CY12

CY13

CY14E

CY15E

CY16E

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

19 May 2014

India Strategy | Good days ahead

DBEL: 5

largest capacity under control by FY15 offers strong volume and

margin levers

Poised for strong scale-up,

driven by sustained focus

on capacity and market

expansion



Low utilization offers strong volume levers. Stabilization of capacity to ease of

balance sheet pressure.

The stock trades at FY15/16E EV/EBITDA of 10x/6.5x and EV/ton of USD61/58.

Valuation offers meaningful upside. Revival in demand with 8%/8%/10% YoY

volume growth in FY15/16/17 should drive margin and re-rate asset valuation.

It offers upside of 233% (Bull case US$100/ton), 130% (Base case US$80/ton)

and 0% (Bear case US$50/ton).

5 largest capacity under control by FY15 offers strong

volume and margin levers

Valuation offers meaningful upside (trend in stock price (INR)

Capacity (mt)

Volume (mt)

EBITDA/ton (INR) RHS

1,400

1,150

900

650

400

Base

1000

750

500

250

Bear

Bull

US$100

US$80

US$50

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

IBREL: Core business generating cash flows stronger than P&L (INR b)



Depicted stronger presales compared to regional peers of Mumbai and

Gurgaon. Presales velocity in Mumbai is still much below historical high/average

over FY10/12.

High cash flow visibility with concluded presales aiding INR52b cash flow along

with INR125b unsold inventories.

PAT is gradually catching up with cash flow strength with expected CAGR of

~58% in FY14-16.

Trading cheap compared to peers in terms of EV/ Cash-EBITDA. With sentiment

revival, at 8x Cash EBITDA (TP of IRN125), upside is 60%.

Cash EBITDA is cash flow before interest, tax outgo, and other one-offs.

Trading cheap compared to peers in terms of

EV/ Cash-EBITDA (x)

15.0

14.0

10.8

8.8

6.2

10.4

9.3

Core business generating cash flows stronger than P&L

(INR b)

7.9

8.8

FCFE

PAT

6.3

5.0

2.2

4.1

5.6

1.7

DLF

IBREL

FY13

FY14

FY15E

FY16E

Phoenix Oberoi Prestige

Mills

Realty

JPIN

Sobha

Source: Company, MOSL

19 May 2014

Source: Bloomberg, Company, MOSL

India Strategy | Good days ahead

Media

Sun TV



Advertising and broadcast revenue has been flat in two out of three years during

FY11-14 led by i) economic slowdown, ii) market share loss, and iii) Impact of

TRAI’s regulation implementing advertising cap.

We expect advertising and broadcast revenue growth to revive from NIL in FY14

to 10% CAGR during FY14-16E, aided by recovery in industry ad growth/market

share.

Sun TV is one of the best plays on the ongoing digitization of the broadcast

network given its explicit subscriber linked model.

Sun TV’s current cable revenue of ~INR2b implies cable ARPU of only

~INR7/month DTH ARPU of ~INR40. Assuming a 30:70 mix for DTH:Digital cable

and ARPU of INR40:INR25, post digitization revenue from this base could be

~INR8.9b.

This implies revenue potential of ~INR5.5b over and above our current FY16

cable revenue estimate of ~INR3.5b. On a post-tax basis this represents EPS

upside of INR9.3 and valuation upside of INR159 (P/E of 17x).

The stock trades at FY15 P/E of 18x (20% discount to average) and dividend yield

of 3.2%. Our target price of INR450 is based on 17x FY16 EPS and does not take

into account the incremental upside from digitization beyond FY16E.

Sun TV: Trading at ~20% discount vs historical P/E

24.3

21.5

9.7

17.4

PE (x)

Median(x)

Peak(x)

Min(x)

47.4

Avg(x)

Sun TV: Expect strong growth in subscription revenue (INRb)

International

Domestic (Cable)

Domestic (DTH)

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

Dish TV



Economic slowdown and increased penetration impacted subscriber momentum

for Dish TV resulting in the gross additions declining from a peak of 3.5m in FY11

to 1.5m in FY14E. We expect the economic recovery (increased demand of flat

panel TVs as well as DTH connections) and phase III/IV digitization (stronger DTH

presence in these markets vs cable) to drive improvement in gross adds to 2.5m

in FY15/16.

Industry ARPU continues to be dragged down due to competition from cable

operators. Implementation of ‘addressability’ with digitization as well as

implementation of reforms like GST will plug the content cost and tax arbitrage

currently available with the cable industry thus lifting the pay TV ARPU table for

all operators including DTH.

19 May 2014

India Strategy | Good days ahead



The stock trades at FY15 EV/EBITDA of 9.2x (40% discount vs historical median

of ~16x one-year forward). Our DCF based target price of INR62 and implies a

target EV/EBITDA of 8.7x FY16.

Modest growth in ARPU during last two years (INR/month)

ARPU (INR)

11.2

9.6

YoY (%)

Dish TV: Subscriber additions to improve

Gross adds (m)

3.5

2.1

1.8

2.5

1.8

1.4

2.8

2.5

2.3

1.5

1.1

FY11

FY12

1.1

1.4

0.7

FY14

FY15E FY16E

1.3

2.5

Net adds (m)

2.8

140.2

-0.4

-3.4

139.7

FY10

FY11

4.1

6.0

145.1

FY09

153.0

FY12

157.4

FY13

163.9

FY14

173.7

180.8

FY09

FY10

FY13

FY15E FY16E

Source: Company, MOSL

Source: Bloomberg, Company, MOSL

19 May 2014

India Strategy | Good days ahead

Extract from

MANDATE 2014: Volume 2

Annexure-I: Ten big bang measures of NDA

Created a growth conducive policy environment for reshaping India

Recent opinion polls have established a clear swing in favor of NDA. The previous

term of NDA was during 1998-2004, when it was a non-Congress government for

the full five year term for the first time in India’s history. Capital market and

corporate India have again built an optimistic expectation on the back of NDA’s

rising popularity. In this report, we take a closer look at the top 10 big bang

sectoral initiatives which the NDA government undertook during the previous stint

that subsequently paved the way for a new growth pattern.

Growth recovered

Inflation moderated

Source: Government, MOSL

Higher saving/investment rate

Higher forex reserves lower rates

Source: Government, MOSL

Ten big bang measures of NDA regime



Highways:

Golden quadrilateral changed the way India travels and transports

goods. NDA built 25,000 km of 4/6 lane highways @11/km per day, compared to

11km/year of previous 50 years. This would have an estimated savings of

INR80b in fuel cost each year, while some economists believe that it accelerated

GDP by 1% by providing huge benefit to cement, steel, automobile, tourism,

logistics, transportation and other industries. The INR600b Pradhan Mantri

Gram Sadak Yojana (PMGSY) was launched to connect all villages with all-

weather roads.

19 May 2014

India Strategy | Good days ahead

Highways @11km/day from 11km/year earlier

PMGSY to connect all villages with all-weather roads



Airports:

Decks cleared for privatization of New Delhi and Mumbai airports.

New international airport approved for Bangalore and Hyderabad. Private

carriers were also encouraged. These measures revolutionized air travel in India

with associated infrastructure, and township and transport hub development

providing second-round benefits.

International standard airport through privatization (Delhi T3) Modernization led to capacity enhancement too (Mumbai)



Power:

A milestone development of Electricity Act 2003 enacted, which de-

licensed generation, introduced competitive bidding framework, merchant

capacity and laid macro framework for rechristening the power sector. APDRP

launched in 63 circles in India and CERC was set up. The highest commercial

losses for SEBs were restructured and a one-time settlement scheme (OTSS) was

pronounced, with dues of power generator cleared by issuing bonds. These

measures led to rapid growth in Indian power sector, with capacity addition

reaching ~20gw/pa now, compared to earlier run rate of 4-5gw/pa. However,

the higher purchase cost by Discoms due to merchant procurement of power

placed the sector on the back foot recently.

19 May 2014

India Strategy | Good days ahead

Electricity Act 2003 gave a fillip to the PPP in power sector

APDRP to ensure commercial viability of SEBs



Telecom:

In 1999, the NDA government noted that the result of New Telecom

Policy 94 (NTP-94) was not satisfactory and the sector was facing financing

issues. Hence, it brought a fresh policy -- the New Telecom Policy 1999 (NTP-99).

This allowed licensees to migrate from a Fixed Licence Fee Regime to a Revenue

Share arrangement with effect from August 1, 1999. The government also

accepted TRAI’s recommendations that all new operators should be selected

through a competitive process and by a multi-stage bidding process. NDA

successfully conducted auction for the fourth cellular operator licence in 2001

for 17 of the 21 circles. It also introduced “Calling party pays” regime which led

to significant increase in mobile phone adoption.

Rates crashed to make it accessible for common man

Telecom density improved dramatically



Disinvestment and PSUs:

NDA government gave a fillip to the privatization

process with the first strategic sale. Also, it turned around many PSUs with their

combined turnover increasing by 48%, net profits by 19%, contribution to

exchequer 30% and dividend by 67%. INR400b invested.

19 May 2014

India Strategy | Good days ahead

Strategic sale gave a big push to PSU disinvestment

Simultaneously many PSUs were turned around

Source: Government, MOSL



Banking:

For improving the banking sector’s health, NPA norms were tightened,

Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest (SARFAESI) Act, 2002 was introduced, which inter alia provided

for enforcement of security interest for realization of dues without the

intervention of courts or tribunals. Also, Corporate Debt Restructuring (CDR)

was introduced to put in place a mechanism for timely and transparent

restructuring of corporate debts of viable entities facing problems, outside the

purview of BIFR, DRT and other legal proceedings. Measures were initiated for

the establishment of a Credit Information Bureau (India) Ltd (CIBIL). CRAR

requirement was enhanced to 9% from 8% earlier.

To infuse competition in the sector, two banking licences were issued. A large

development finance institution (DFI) was merged/converted into a bank, while

another neared completion. FDI limit in private sector banks under the

automatic route was enhanced to 49% and further to 74%.

On the operational front, BPLR was introduced to enhance transparency,

besides lowering rates by taking advantage of the benign inflation scenario.

Banks were urged to give special attention to the computerization and

networking of branches on a time bound basis.

Health of banking sector improved

A more conducive interest rate regime was ushered in

Source: RBI, MOSL

19 May 2014

India Strategy | Good days ahead



Energy security:

Waiting period for LPG connection reduced from the earlier

four to five years. Smaller 5kg sized cylinder introduced for the benefit of hilly

regions and economically weaker sections. Government decided to build 5mt of

strategic oil reserve. Contracts for eight coal bed methane gas blocks signed.

INR100b invested to scale up refineries to improve fuel quality. Indian oil sector

moved from a controlled regime to a partly decontrolled one, which led to

private player participation across the value chain. Important measures in that

direction include:

New Exploration and Licensing Policy (NELP) announced.

Government decided on phased dismantling of APM.

MS, HSD, SKO, LPG, ATF pricing moved to import parity price to compute

refinery gate price.

Naphtha FO, LSHS, Bitumen wax and Paraffin Wax decontrolled.

Private refiners allowed to import crude directly (de-canalized).

Refinery sector delicensed -- FY97-04 witnessed significant investments by

private players in refining and marketing (Reliance, Essar, Shell, MRPL).

PSU oil companies restructured.

ATF decontrolled.

Refinery de-licensing helped set up capacity in private sector

Low oil prices and reform kept oil subsidy low

Source: Government, MOSL



Tourism:

A new Tourism Policy was adopted. The policy attempted to position

India as a global brand and aimed to create integrated tourism circuits and also

involved the private sector. Rural tourism was given emphasis. National mission

was launched for manuscripts, antiquities, monuments, intangible cultural

heritage and over 100 monuments were restored.

Painstaking restoration

Integrated tourism circuits

Creating brand India for tourism

19 May 2014

India Strategy | Good days ahead



FRBM Act:

The Fiscal Responsibility and Budget Management Act, 2003

(FRBMA) was enacted to reduce the fiscal deficit within 3% of GDP by 2008.

Significant restraints were placed on states as well that were required to put in

their own version of FRBM Act.

State Govts. were more compliant of respective fiscal Acts

FRBM brought fiscal house in order

Source: Government, MOSL



Source: Government, MOSL

And the nuclear bomb!

Last but not the least, NDA conducted the nuclear bomb

tests amid widespread national and international criticism. However, this was

followed by more peace initiatives -- no first use, no use against non-nuclear

countries etc. The sanctions that followed were slowly lifted and India proved a

point to be counted among the big league. Other civilian initiatives included

launching the first GSLV test satellite and private collaboration in cutting edge

technology.

Pokhran Nuclear Test: India’s announcement of its adulthood The man who guided it all – Former President Dr. Kalam

19 May 2014

India Strategy | Good days ahead

Extract from

MANDATE 2014: Volume 5

Please refer to our India Politics

thematic “Mandate 2014 - Vol 5”

for detail discussion dated 2 May

2014

Annexure-II: What to expect if NDA comes to power

Assimilating intended policy actions from BJPs manifesto / key decision-makers

India concluded its seventh phase of polls thus ending polling for approximately

four-fifth of the total Lok Sabha seats (438 seats out of total 543 seats). Voter

enthusiasm was clearly visible with 66.2% turnout till Phase 7 v/s 57.6% in 2009 for

same number of seats (an increase of 8.6%) (

Please refer our India Politics report titled

‘Voter enthusiasm continues’ dated April 25, 2014

). Higher voter turnout has been a

harbinger of change and if opinion polls verdict are to be considered, we are likely to

see a BJP-led NDA government at the centre with Narendra Modi as the likely Prime

Minister.

With the 2014 general elections being the pivotal point for the world’s largest

democracy, there has been a lot of inquisitiveness from investor community with

regards to the probable economic policies which a Narendra Modi-led NDA

government could initiate. We have tried to gauge the probable policy initiatives

through a number of sources – BJP manifesto, various speeches by Narendra Modi

and other senior BJP leaders in various forums and media appearances.

BJP’s 3D by 3D framework



BJP’s manifesto begins with a note observing the three fairly indisputable

strengths of India, viz., democracy, demography and demand.

Evolving upon this, the economic think-tank of BJP and its leaders, have sought

to address a whole host of issues - both that need immediate attention as also

that of long term in nature. Consistent with this objective, they have also laid

down a mechanism to adapt the vision into practical implementable strategies.

We have put the above game plan into a 3D by 3D framework. In an economic

sense the inputs for their economic vision are the three core strengths, i.e.,

Democracy, Demography and Demand (3D).

The outcomes are also essentially 3D. The first pillar of the outcome is

‘Desirables’,i.e., issues that demand immediate attention. These are in the

nature of business sentiments and improvement in macroeconomic stability.

The second pillar is ‘Development’ on a fast track. Here, BJP and its leadership

have come out with a lot of innovative and game changing ideas that can

potentially put India into a higher growth orbit.

The third pillar of ‘Delivery’ gathers the key instruments needed to attain the

first two goals.

BJP’s 3D by 3D framework

Source: BJP Manifesto, MOSL

19 May 2014

India Strategy | Good days ahead

#D1: The immediate DESIREABLES



Inflation:

Unbundle FCI operations, Price Stabilisation Fund, Special Courts to

tackle hoarding

Tax policy:

GST roll out, rule based, dispute resolution

FDI:

In all sectors barring multi-brand retail

Fiscal deficit:

Fiscal autonomy together with financial discipline

CAD and INR:

Preference for lower CAD and stronger INR

#D2: On the fast track of DEVELOPMENT



Urbanisation:

To build 100 new smart cities; twin cities and satellite towns;

focus on urban transport

Transport:

Diamond Quadrilateral project of High Speed Train network (bullet

train); expedite dedicated freight corridors and national highways development;

roads and rail to the hinterland

Manufacturing:

Develop industrial regions; single window clearance with time

bound environment clearance; address issues of labour, logistics and power

Infrastructure:

Set up gas grids, National Optical-Fibre Network, Housing for all

by 2022, creation of 50 affordable and theme based tourist circuits

Energy:

Comprehensive 'National Energy Policy’, e-auction of precious natural

resources, expedite oil and gas explorations; set up small-hydro power

generation projects

Agriculture:

Ensure a minimum of 50% profits over the cost of production; agri

rail network; linking MGNREGA to agriculture; reform the APMC act

#D3: Rethinking on the instruments of DELIVERY



Team India:

A body of Prime Minister and Chief Ministers and other

functionaries, Create 'Regional Councils of States' for addressing common

problems,

Relook in to the land acquisition:

To adopt a 'National Land Use Policy'; to

implement a monitoring agency; to work with the State Land Use Authorities

Labour and employment:

Reform labour laws; absorb labour in urbanisation,

infrastructure and housing; promote labour-intensive manufacturing; multi-skill

development

Integrate the nation:

Special focus on eastern and north eastern region and the

hilly areas, to people-public-private partnership (PPPP) model

19 May 2014

India Strategy | Good days ahead

Narendra Modi: Prime Ministerial candidate of the BJP-led NDA government

Public sector privatisation



Case to case non-political decisions should be taken based on advise.

PSU employees should be taken

into confidence and given

chance if they can run it professionally

and better than private organizations.

Example of GSFC

that was about to be closed and was turned around.

Less political interference and more professional functioning in PSUs

Bring labour laws from the concurrent list to the state list

This will put the responsibility of ensuring labour is treated well on the state government

Gujarat government is purely the facilitator. It just puts the industrialist and farmer at the same table and

let them carry out negotiations. We ensure that the farmer is not exploited.

Never held back FDI in technology and defence.

Our stand is to block FDI in retail.

Export policies needed to be consistent

– Indian government still hasn’t been able to explain why it

stopped exporting cotton.

Government control on agriculture should not be much.

Public spending on education would be raised to 6% of the GDP,

and involving the private sector would

further enhance this.

Only poor has the right over the treasury of India

and would remain so.

But the approach would change to bring poor out of poverty quickly rather than to keep them poor

perpetually.

Visit Gujarat’s interior to poorest of villages (to enroll people for school, teach, develop) every year three

days (13-15 June) along with all ministers and bureaucrats.

Every year for one month between May-June ‘Krishi Mahotsav’ (farmers’ congregation) is conducted in

which 800 scientists of all Gujarat universities are brought together to reduce gap between lab to land

(discuss the use of fertilizer, seeds, pesticides every year).

On handling labour issues

On land acquisition

On FDI in technology and

defence manufacturing

On agriculture and policy

actions

Education

On India’s poor and poverty

On ground research

Arun Jaitley: Senior leader of BJP

On sentiments



The

political change itself will be the biggest change to investment sentiment,

we will rebuild and recreate the

investment cycle and make India an investment destination where it’s easy to do business.

The NDA government would be

more business friendly, more efficient, more honest

and its policies would have

greater stability.

You will need to back it up with

a government which easily clears investment proposals.

Additionally,

we will not

discriminate between states.

Whether it is a politically friendly government or opposition government we would

like to see the chief minister involved in the whole process of investment and clearance of investment proposals.

We will create an environment where states irrespective of their political complexion compete with each other for

attracting investment and growth.

The current

income tax exemption for income of INR0.2m should be gradually but significantly raised.

It will be

the major relief to small traders and mid-level employees and the common man.

Immediate implementation of the Goods and Service Tax (GST)

… that comfort level will be given to states which

anticipate a loss of revenue. This will ensure uniform rate of tax in all states.

Small industrial units

with turnover of INR15m are exempted from payment of excise duties and in view of the

depleting value of rupee and inflation; this

limit should be enhanced to INR50m.

Maybe their policy is being guided by the present circumstances, and I won’t make any judgement on them …

Higher rates are making the economy sluggish and a competitive economy cannot afford them.

This whole interplay of inflation controlling measures and interest rates being the key under the UPA made the

economy more sluggish. Therefore,

we would eventually like to see a softening of interest rates.

On RBI Governor:

We are not getting into issues relating to persons.

I don't think we have reached that stage.

Building capacity in ports, highways and power, developing townships and focusing on low-cost manufacturing

to create jobs.

We categorically say our party is not against FDI. I have always called

FDI an additionality of resource which is

required for investment but our stand is that FDI will always be sector specific.

As far as FDI in retail is concerned our party is completely opposed to it. What do you with what has already

happened? It's only if we are voted in that we will take a decision.

50 tourism circuits

centres to be declared, including Amritsar due to its religious and historical importance, and

such circuits should be exempted from strict compliance of Jawahar Lal Nehru Urban Renewal Scheme (JNURM)

conditions

on states on taxation on property owners

Source: Various media report

On investments



Taxation



On RBI policy



On infrastructure

On FDI



Tourism



19 May 2014

India Strategy | Good days ahead

Highlights of BJP’s Manifesto

Inflation



Special Courts to stop hoarding and black marketing

Setting up a Price Stabilisation Fund

Unbundle FCI operations into procurement, storage and distribution

Disseminate real time data, especially to farmers - on production, prices,

imports, stocks and overall availability

Evolve a single 'National Agriculture Market'

Employment



Labour-intensive manufacturing (viz. textile, footwear, electronics assembly,

etc.) and tourism

Strengthen traditional employment bases of agriculture and allied industries and

retail through modernization

Upgradation of infrastructure and housing

Encourage and empower our youth for self-employment – incubating

entrepreneurship as well as facilitating credit.

Multi-skills development programme in mission mode

“People achieve Moksha by

visiting 4 pilgrimage sites.

However, government files

often had to travel to over

20 tables before it is

addressed” –

Narendra

Modi

Team India: States as partners in development



Team India to be built with Prime Minister and Chief Ministers and other

functionaries as equal partners

Ensure fiscal autonomy of States while urging financial discipline

Create 'Regional Councils of States', with common problems and concerns, with

a view to seeking solutions that are applicable across a group of states.

State-specific developmental priorities/ models to be evolved for problems of

the hill and desert states

Involve the state Governments in the promotion of foreign trade and commerce

The moribund forums like 'National Development Council' and 'Inter-State

Council' will be revived and made into active bodies

We need to put ‘life’ in a

‘file’ –

Narendra Modi

Integrating the Nation



Bring the eastern parts of the country on par with the western parts through

special focus and emphasis on the development of the eastern side of India.

NDA government will empower the Ministry of North-Eastern Region with a

broader charter and non-lapsable funds for the rapid development of the region

(massive infrastructure development and connectivity).

We will further evolve the Public Private Partnership (PPP) model into a People-

Public-Private Partnership (PPPP) model. People should get a chance to speak

before a government decision is taken. This will make people feel like they have

had a role to play. Wherever possible we should take the people of consent. This

will speed up the pace of development

Urbanisation



Major steps will be undertaken in Transport and Housing for 'Urban Upliftment'

in India.

19 May 2014

India Strategy | Good days ahead



We will initiate building 100 new cities; enabled with the latest in technology

and infrastructure - adhering to concepts like sustainability, walk to work etc,

and focused on specialized domains.

Approach to urban development will be based on integrated habitat

development - building on concepts like Twin cities and Satellite towns.

Tax Policy Roadmap



Overhaul the dispute resolution mechanisms

Bring on board all State governments in adopting GST, addressing all their

concerns. For implementing the same, a robust IT network system will be put in

place.

Provide tax incentives for investments in research and development, geared

towards indigenization of technology and innovation

Foreign direct investment



Exclude multi-brand retail sector from FDI; to protect the interest of small and

marginal retailers

FDI will be allowed in all other sectors other than multi-brand retail

Agriculture



Enhance the profitability in agriculture, ensuring a minimum of 50% profits over

the cost of production

Linking MGNREGA to agriculture

Implement and incentivize the setting up of the food processing industry; will

lead to job creation and better income for farmers.

Set up the 'Organic Farming and Fertilizer Corporation of India'

Reform the APMC act

Genetically Modified (GM) foods will not be allowed without full scientific

evaluation on its long-term effects on soil, production and biological impact on

consumers

Land acquisition



BJP will adopt a 'National Land Use Policy', which will look at the scientific

acquisition of non-cultivable land, and its development; protect the interest of

farmers and keep in mind the food production and other economic goals

To implement a monitoring agency National Land Use Authority, which will work

with the State Land Use Authorities to regulate and facilitate land management.

Becoming a global manufacturing hub



19 May 2014

Invest in logistics infrastructure, ensure power supply and undertake labour

reforms

To move towards a single-window system of clearances both at the centre and

also at the State level through a Hub-spoke model

Decision-making on environment clearances to be made transparent as well as

time-bound

Increase the public spending on R&D and Incentivize R&D investments by the

industry to increase the competitiveness of the manufacturing sector.

Facilitate setting up of software and hardware manufacturing units.

India Strategy | Good days ahead

Infrastructure



Business and trade:

Build world class Ports - modernize existing ports and

develop new ones, connecting them with roads and rail to the hinterland. Air

Cargo facilities will be enhanced throughout the country. Develop National

logistics network for faster movement of goods.

Housing:

Roll out a massive Low cost Housing programme in order to achieve

housing for all by 2022

Tourism:

Key role through creation of jobs, enterprise, infrastructure

development, and foreign exchange earnings. To create 50 tourist circuits that

are affordable and built around themes – archaeological and heritage; cultural

and spiritual, Himalayan, desert, etc.

Transport:

To expedite work on the Freight Corridors and attendant Industrial

Corridors. To expedite the National Highway construction projects.

Railways:

Hinterland will be connected to the ports through strategic new Rail

networks. Launch Diamond Quadrilateral project - of High Speed Train network

(bullet train). Agri Rail network will be established.

Other areas:

Set up gas grids to make gas available to households and industry.

To set up a National Optical-Fibre Network up to the village level. Inter-linking of

rivers based on feasibility.

Energy



To come out with a comprehensive 'National Energy Policy’

Set up small-hydro power generation projects

To set in place national policies on critical natural resources like coal, minerals,

spectrum, etc.

Increase the domestic coal exploration and production, to bridge the demand

and supply gap.

Oil and gas explorations would be expedited in the country

To implement auction of precious resources through efficient mechanisms

including e-auction

19 May 2014

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India Strategy | Good days ahead

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19 May 2014

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