PORTFOLIO

MANAGER'S
VIEW
Volume II January - February 2011
NAVIGAT R
Prashanth Narayan, VP & Head - PMS,
ING Investment Management (I) Pvt. Ltd.

Political Instability And Inflation –

Key Risks For Indian Markets
I nflation globally is climbing and, with it, the pressure on
Central Banks to raise rates. The BoE are likely to tighten
first, followed by the ECB. The inflation is “cost-push”,
arising from increases in the prices of crude, foodstuffs,
steel, and the like. It is surprising that the USA is not seeing
similar inflationary pressure, especially as the USD has
weakened so much, however as the steepening of the USD
yield curve suggests that there is an expectation of higher
inflation in the coming quarters.
The US economy is seeing an
expanding GDP as well as a rising stock
market. However, the concerns over
the US economy largely remain
unchanged. Are there any real
investments in US? When will the
access to cheap money end? What
will happen when QE2 ends? When
will inflation in US start to increase?
Historically excessive quantitative
easing has clearly led to higher
inflation and we opine that increase in
inflation in the US is just around the
corner.
A significant development which is becoming more evident
in early 2011 is the growing importance of China’s role in
financial markets. We have already seen their contribution
to the rescue of the EUR when China bought Spanish and
Ireland bonds, and it is now lending more to Emerging
Markets than even the World Bank. This can mean 2
important changes; firstly, China is very worried about its
lending to US (in way of purchasing of US treasury) and
wants to diversify and secondly, they are slowly becoming a
financial powerhouse. China, in its efforts to diversify its
forex holdings might be a significant buyer of gold and other
precious metals in coming years.
Indian companies have been reporting 3Q FY11 earnings;
the reporting season will continue till February end. A
common trend of quarterly reporting has been strong
volume growth and disappointing margin performance.
Financials and IT stand out with Financials having reported
healthy credit growth and better-than-expected net interest
margins and IT companies continue to be positive in their
growth outlook. FIIs sold upwards of USD 1bn in the month
and domestic investors, after a long time, were net buyers to
the tune of USD 1.5bn. To put this in perspective, domestic
institutional investors were net sellers of approximately USD
4.3bn for the entire year of 2010.
Political stability and the
ability to continue with
reforms have taken a hit in
the recent past and the
premium the Indian market
has been enjoying due to
political stability is
dwindling. The government
has further postponed the
rollout of GST (Goods &
Service Tax) as well as DTC
(Direct Tax Code) to FY2013
and PSU follow on offers
calendar is also behind
schedule. 2011 also has 6
state elections which is
crucial for the Congress
party. Given this backdrop, we think the budget will be a
populist budget. We expect the government to reduce
import duty to ease the inflationary pressures.
Inflation continues to be a big risk to domestic markets with
WPI rising to 8.4% from 7.5% last month, led by a renewed
surge in primary article inflation and a continued pickup in
the momentum of non-food manufacturing. The Central
Bank hiked benchmark rates by 25 bps, against market
expectation of 50 bps, landing the Repo rates at 6.5%.
The banking system is still tight with liquidity with the call
money rates hovering at 7%. Most of the banks have
increased their lending and deposit rates to adjust to the
tight liquidity situation. The 10Y yields strengthened from
7.91% to 8.16% due to higher inflation and anticipation of
interest rate hikes.

Note: ING India BSE200 Quant Equity Portfolio is a portfolio management strategy offered by ING Investment Management (India) Pvt. Ltd.
PORTFOLIO
MANAGER'S PORTFOLIO
VIEW
Volume II January - February 2011
NAVIGAT R

Summary

ING India BSE-200 Quant Equity Portfolio is a large-cap biased strategy. Our objective is to
provide long term capital appreciation from a portfolio that is invested predominantly in equity and
equity related securities. The benchmark for the portfolio is BSE 200. ING Investment Management
India uses quantitative proprietary model to construct an equity portfolio of stocks.

Key Benefits

The strategy is supported by:-

• A proprietary model based on risk and return estimates.
• A robust quantitative model tested across various market cycles & long time horizons.
• Disciplined execution of the model without deviations.
• Sound risk management.
This strategy provides broadly concentrated exposure to stocks in the BSE 200.

Investment Process

Expected return and risk/volatility are estimated from ING’s proprietary model.
• Risk estimate is evaluated by forecasting volatility for each stock.
• Return estimate for each stock is calculated using momentum factors.
- Momentum factors include: stock price momentum and market beta.
• Last 3 years historic price behavior is used to estimate volatility.
• Sector and stock limits are imposed during portfolio construction for optimal diversification.
• Portfolio optimization model generates multiple portfolios with varying degree of risk /
volatility & expected return.
• The portfolio with the least risk & returns greater than the benchmark is chosen.

Contribution To Process & Returns

Stock High
Selection Low

We add value by construction of portfolio of 20 to 30 stocks within BSE 200 using proprietary model.
The model is based on correlation between stocks, volatility forecasts and return forecasts.

Sector High
Allocation Low

There is no specific bias towards any sector. The portfolio can go overweight by 20% above the benchmark weight.

Sell High
Discipline Low

The portfolio is re-balanced periodically. The portfolio will also be re-balanced if the portfolio volatility is
2 standard deviations above the long term mean. The Portfolio Manager can take a decision to exit an individual stock
only incase of business restructuring which changes the nature of the business and/or corporate governance issues.

Market High
Timing Low

The portfolio is fully invested at all times.

Note: ING India BSE200 Quant Equity Portfolio is a portfolio management strategy offered by ING Investment Management (India) Pvt. Ltd.
PORTFOLIO
MANAGER'S PORTFOLIO
VIEW
Volume II January - February 2011
NAVIGAT R
Portfolio Positioning
Relative weight* vis a vis Benchmark Relative change vis a vis previous model portfolio
PHARMA
PHARMA
INDUSTRIAL MANUFACTURING
AUTOMOBILE
IT
CONSUMER GOODS
FINANCIAL SERVICES
TELECOM

INDUSTRIAL MANUFACTURING CEMENT & CEMENT PRODUCTS

FERTILISERS & PESTICIDES CONSTRUCTION
SERVICES FERTILISERS & PESTICIDES
METALS
CEMENT & CEMENT PRODUCTS
Underweight Overweight CHEMICALS
PAPER
INDUSTRIAL CAPITAL GOODS INDUSTRIAL CAPITAL GOODS Underweight Overweight
MEDIA & ENTERTAINMENT MEDIA & ENTERTAINMENT
TELECOM PAPER
CHEMICALS TEXTILES
TEXTILES AUTOMOBILE
CONSTRUCTION SERVICES
IT
CONSUMER GOODS
METALS
ENERGY
ENERGY
FINANCIAL SERVICES
-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00
-10.00 -8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00

* of model portfolio, rebalanced on 14th Dec. 2010 (As on 31st Jan'11) (As on 31st Jan'11)

Performance Contribution
Sector Allocation (As on 31st Jan'11)
Sectors Model Portfolio Weight Contribution to Model Portfolio Performance
ENERGY 7.04 0.48%
FINANCIAL SERVICES 26.56 -0.25%
IT 5.20 0.31%
CONSTRUCTION 2.12 0.17%
CEMENT & CEMENT PRODUCTS 2.25 0.07%
TELECOM 2.50 0.27%
FERTILISERS & PESTICIDES 2.00 -0.20%
INDUSTRIAL MANUFACTURING 6.46 0.13%
SERVICES 2.00 -0.34%
PHARMA 15.68 0.25%
CONSUMER GOODS 13.77 0.53%
AUTOMOBILE 13.87 -0.89%
PERFORMANCE DEPICTED ABOVE ARE BASED ON THE MODEL PORTFOLIOS (MODEL REBALANCED ON 14TH DEC '10) CONSTRUCTED USING THE PROPRIETARY QUANT STRATEGY BEFORE
CONSIDERING ANY EXPENSES. Investors or prospective investors are requested to note that the model portfolio performance results are derived considering that the securities in the model portfolio are bought at their
closing prices as on the day of initial investment/rebalancing. Hence, unlike an actual performance record, the results depicted above may have over or under compensated for the impact, if any, of certain market factors such
as lack of liquidity, money flow, etc. Investors/Prospective investors may also note that the performance of actual portfolios of clients may vary due to factors such as expenses charged, timing of entry and exit, timing of
additional flows and redemptions, individual client mandates, specific portfolio construction characteristics or structural parameters. These factors may have bearing on individual portfolio performance and hence individual
returns of clients may vary significantly from the data on performance of the model portfolio depicted above. Neither the Portfolio Manager, nor its Directors or employees shall in any way be liable for any variation noticed in the
returns of individual portfolios.
The performance indicated above does not indicate or guarantee, in any manner, the performance of ING India BSE-200 Quant Equity Portfolio strategy offered by ING Investment Management (India) Private Limited. The
Portfolio Manager does not make any representation that any investor will or is likely to achieve profits or losses similar to those shown above. PAST MODEL PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS
OF THE CLIENT PORTFOLIOS.

Market Review
It was not a pleasant sight for our markets for the month of January. It was also the beginning of the New Year and it was a very shaky start for the
year to say the least. It was also a month of contrast with most of the developed markets posting handsome gains whilst the domestic market
bleeded. The consensus for the US economic growth improving, lead to outflows from our markets from the FIIs. The news on the economic data
domestically also added to the weakness with IIP growth plunging to 2.7% for the month of November. On the monetary policy front, RBI continued
with the calibrated monetary normalization process in the January policy review meeting and hiked the benchmark rates- Repo and Reverse repo by
25 bps each.
In the midst of result season, there was also a lot of stock specific action as the results were announced. The overall results till date can be
characterized as being healthy on volume/sales growth but pressure pertaining to margins were visible on account of rising commodity prices.
Foreign institutional investors (FIIs) were sellers of Indian equities over the month to the tune of $ 1 bn. This was the first significant outflow after a
sustained inflow over the last year.
The benchmark indices of Sensex and Nifty lost 10.64% and 10.25% respectively. The sectors with global exposures like IT, Metal and Pharma were
relative outperformers. Real estate and Auto were the worst hit on fears of rising interest rates.

Portfolio Performance
The BSE-200 Portfolio outperformed its benchmark, BSE 200 Index by 0.38%* for the month. The outperformance was majorly
contributed by exposure in IT, Telecom, Pharma, Consumer and energy. The sectors which detracted the performance were Auto, Financials
and Services.
*PERFORMANCE DEPICTED ABOVE ARE BASED ON THE MODEL PORTFOLIO (MODEL REBALANCED ON 14TH DEC '10) CONSTRUCTED USING THE PROPRIETARY QUANT STRATEGY CONSIDERING A
MANAGEMENT FEE OF 2.50% AND CUSTODY & TRANSACTION CHARGES OF 0.33%.Investors or prospective investors are requested to note that the model portfolio performance results are derived considering that the
securities in the model portfolio are bought at their closing prices as on the day of initial investment/rebalancing. Hence, unlike an actual performance record, the results depicted above may have over or under compensated for the
impact, if any, of certain market factors such as lack of liquidity, money flow, etc. Investors/Prospective investors may also note that the performance of actual portfolios of clients may vary due to factors such as expenses charged, timing
of entry and exit, timing of additional flows and redemptions, individual client mandates, specific portfolio construction characteristics or structural parameters. These factors may have bearing on individual portfolio performance and
hence individual returns of clients may vary significantly from the data on performance of the model portfolio depicted above. Neither the Portfolio Manager, nor its Directors or employees shall in any way be liable for any variation noticed
in the returns of individual portfolios.
The performance indicated above does not indicate or guarantee, in any manner, the performance of ING India BSE-200 Quant Equity Portfolio strategy offered by ING Investment Management (India) Private Limited. The Portfolio
Manager does not make any representation that any investor will or is likely to achieve profits or losses similar to those shown above. PAST MODEL PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS OF THE CLIENT
PORTFOLIOS.
Note: ING India BSE200 Quant Equity Portfolio is a portfolio management strategy offered by ING Investment Management (India) Pvt. Ltd.
PORTFOLIO
MANAGER'S PORTFOLIO
VIEW
Volume II January - February 2011
NAVIGAT R

Model Portfolio Performance

20

IIB200QE Portfolio
`15.55 Lakh ` 10 Lakh invested
Movement of (`1,000,000)

in BSE-200 Index on
BSE-200 Index 15th July’09 would
`13.02 Lakh have become
10 ` 13.02 Lakh on
31st Jan '2011.
Whereas ` 10 Lakh
invested in
IIB200QEP would have
become ` 15.55 Lakh
0
9

09

09

10

10

10
0
09

10

11
9

09

10

10
0

10
l-0

l-1
-1
t-0

r-1

-1

t-1
c-

c-
p-
g-

n-

b-

p-

n-
v-

n-

g-

v-
ar

ay
Ju

Ju
Oc

Oc
Ap
De

De
No

No
Au

Au
Se

Fe

Se
Ja

Ja
Ju
M

Since Inception
1 Month 3 Months 6 Months 1 Year (15th Jul'09)*
IIB200QE Portfolio -10.03% -12.89% -0.72% 16.10% 33.01%
BSE-200 Index -10.41% -10.69% -0.50% 9.93% 18.61%
Value Added 0.38% -2.20% -0.22% 6.17% 14.40%
PERFORMANCE DEPICTED ABOVE ARE BASED ON THE MODEL PORTFOLIO (MODEL REBALANCED ON 14TH DEC '10) CONSTRUCTED USING THE PROPRIETARY QUANT STRATEGY
CONSIDERING A MANAGEMENT FEE OF 2.50% AND CUSTODY & TRANSACTION CHARGES OF 0.33%. Investors or prospective investors are requested to note that the model portfolio
performance results are derived considering that the securities in the model portfolio are bought at their closing prices as on the day of initial investment/rebalancing. Hence, unlike an actual
performance record, the results depicted above may have over or under compensated for the impact, if any, of certain market factors such as lack of liquidity, money flow, etc. Investors/Prospective
investors may also note that the performance of actual portfolios of clients may vary due to factors such as expenses charged, timing of entry and exit, timing of additional flows and redemptions,
individual client mandates, specific portfolio construction characteristics or structural parameters. These factors may have bearing on individual portfolio performance and hence individual returns of
clients may vary significantly from the data on performance of the model portfolio depicted above. Neither the Portfolio Manager, nor its Directors or employees shall in any way be liable for any
variation noticed in the returns of individual portfolios.

Performance depicted above is as on 31/1/2011. Returns up to one year are absolute and returns for periods exceeding 1 year are CAGR. The performance indicated above does not indicate or
guarantee, in any manner, the performance of ING India BSE-200 Quant Equity Portfolio strategy offered by ING Investment Management (India) Private Limited. The Portfolio Manager does not make
any representation that any investor will or is likely to achieve profits or losses similar to those shown above. PAST MODEL PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS OF THE
CLIENT PORTFOLIOS.

Source: Internal IIB200QE Portfolio Performance (Model)

IIB200QE Portfolio = ING India BSE-200 Quant Equity Portfolio
*The date on which the first client investment made under the strategy.

INVESTMENT MANAGEMENT
www.ingim.co.in

ING Investment Management (India) Private Limited is registered with SEBI as a Portfolio Manager (“Portfolio Manager”).
DISCLAIMER & RISK FACTORS:
This Document is for information purpose only. This Document and the Information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or
the solicitation of an offer to buy or sell any products/strategy mentioned in this Document or an attempt to influence the opinion or behavior of the Investors/Recipients. Any use of
the Information / any investments and investment related decisions of the Investors/Recipients are at their sole discretion & risk.
Investments in Portfolio Management products/strategy are subject to market risks due to various micro and macro factors and forces affecting the capital markets which include
price fluctuation risks. There is no assurance or guarantee/warranty that the objectives of any of the products/strategy will be achieved. The investments may not be suited to all
categories of Investors/Recipients. As with any investment in any securities, the value of the portfolio under products/strategy can go up or down depending on the factors and
forces affecting the capital market. The investment objective of the ING India BSE-200 Quant Equity Portfolio is to construct an optimally focused portfolio of large & mid cap
securities to significantly outperform BSE-200 with the risk lesser than the benchmark (BSE-200). ING India BSE-200 Quant Equity Portfolio is only the name of the Portfolio
Management products/strategy and does not in any manner indicate either the quality of the products/strategy or its future prospects and returns. The past performance of the
Portfolio Manager and/or its affiliates is not indicative of future performance.
The Portfolio Manager, its affiliates/associates, their directors, employees, representatives or agents shall not be liable or responsible, in any manner whatsoever, to any
Investor/Recipient or any other person, for the performance/profitability/operations of the products/strategy, the contents of any document or any investments in the
products/strategy including any and all direct, special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.
ING India BSE-200 Quant Equity Portfolio is not sponsored, endorsed, sold or promoted by Bombay Stock Exchange Limited (“BSE”). The relationship of BSE towards ING Investment
Management (India) Private Limited (“Portfolio Manager”) is only in respect of the licensing of use of the Trademark “BSE-200” which is determined, composed and calculated by
BSE without regard to the Portfolio Manager or ING India BSE-200 Quant Portfolio. Kindly refer to the Disclosure Document for the detailed warranties & disclaimers. Any change or
amendment to this Disclaimer altering any of the provisions may be made at the sole discretion of BSE.
Investors/Recipients are not being offered any guaranteed or assured returns. Prospective Investors are advised to read the Disclosure Document, client agreement
and other related documents carefully and consult their legal, tax and financial advisor before making the investment decision.

Note: ING India BSE200 Quant Equity Portfolio is a portfolio management strategy offered by ING Investment Management (India) Pvt. Ltd.