Global Financial Crises

Genesis 2004-06 Long period low inflation, cheap money Rising asset prices the asset bubble Overleveraging by financial institutions Subprime lending especially in US and UK Repackaging of the debt Turn of Tide Mid 2007 US house prices started falling Higher foreclosures and credit defaults Value of securitised debt instruments falls Pressure on FI balance sheets and doubts on creditworthiness Tightening credit and liquidity Crises Sep 2008 Collapse: Lehman, WaMu Takeovers : Merrill Lynch, Wachovia, HBOS

Government bailouts : AIG, Fortis, Dexia, RBS

Country crises : Iceland, Pakistan Collapse of confidence Massive bailout/financial stimulus packages

The world is witnessing unprecedented times.

Beginning of 2008 Peak During Year Beginning of 2009 % (down) /up from peak

Indices
Sensex (BSE India ) Nifty (NSE India ) Dow Jones index (USA) Shanghai Composite(China) HangSeng Index (Hongkong) 20287.0 6138.6 13278.0 5269.8 27812.0 21206.0 6357.0 13364.7 5497.9 29558.9 9647.0 2959.2 8867.0 1820.8 14387.0 -54.5 -53.5 -33.7 -66.9 -51.3

M acro Indicators
10 Year G Sec Yield Rs./ $ WPI Inflation ( India) 7.9% 39.4 4.3% 9.5% 50.0 12.9% 5.2% 48.8 6.4% -45.0 -2.4 -50.6

Commodities
Crude ( Brent) ( USD/ bbl) Gold ( USD / Oz.) Steel ( USD / Tonne) 96.4 863.0 425.0 145.3 1032.0 960.0 36.6 882.0 360.0 -74.8 -14.5 -62.5

All asset classes were extremely volatile through 2008, due to events in global financial markets. In 2009 the impact of a slowing economy and central bank intervention are very visible.(Source : Bloomberg)

Developed economies in recession, Emerging economies also feeling the brunt

Developed economies Emerging economies Fall in demand from developed countries hitting export oriented economies Emerging market currencies have devalued against USD, making imports more expensive Foreign investment have slowed down impacted liquidity and investments

Consumer spending

slowing down, due to falling incomes and credit contraction

Major job losses Investment slowdown

as era of cheap money is over

Indian Economy impacted, but to a lesser extent

GDP Growth (%)
10 9 8 7 Q1 FY06 Q1 FY07 Q1 FY08 Q1 FY09
17,000 14,000 11,000 8,000 Apr-08 Jun-08 Sep-08 Dec-08

Sensex
16 13 10 7 4 May-08

Inflation (%)

Jul-08

Sep-08

Nov-08

Slow down in GDP growth expected to be

between 6-7 % in 2009-10

Rupee depreciated by 20% during 2008

Forex reserves declined by US$ 56 billion

FII outflow from equity of US$13.1 billion leading

to 50% drop in Sensex

Most global economies are in a recession

2nd highest

Customer Sentiment Study - AC Nielsen

Consumer's optimistic mindset
83% believe the economy will get better in the next year.

Public Sector is safe

Public sector banks are the safest say 50% of the respondents

Returns and protection are the features consumers want in an insurance policy.

Life Insurance Customer Choice

Life Insurance is almost at par with gold as an investment option. Life Insurance safest investment bet say majority of the consumers

ULIP Still The flavor

40% of respondents feel ULIPs are the best investment product. Only 40% ULIP owners have received any advice from their insurance agents since the time the crisis started.

India is a young country

Currently over 50 crore people below the age of 30 The group between 20-59 age will grow in next few years giving us demographic dividend

Higher working population fuels demand and growth

Source:
Government statistics; Nomura Research Institute Asian Perspective

Household income growth will continue to accelerate across India

India has strong domestic demand

Source:
McKinseys research on Indian consumerism (At fixed prices of 2000)

Indias savings have been on a clear up trend From 23.5% of GDP in FY03 to 34.8% currently The household sector continues to be the biggest contributor to total savings ( 68%)

Demographic, Reforms and Globalization to result in long term per capita income growth

Indias beginning its journey on the S Curve With a Insurance penetration of 4.1% of GDP, India is far behind developed world

India is on robust growth path

Sound Fundamentals
Overall demand still expanding Relatively low export dependence Low External Commercial Borrowings

High fx reserves ($250bn)

High savings rate (+30%) FDI increasing at +100% Strong banking system Government focus towards growth oriented policy measures

Long term story remains intact, viable and attractive will play

out over next 30-40 years

Near term cyclical growth slowdown now accepted as reality

Historically, significant gains have usually resulted within 24 months of major falls
Fall Apr 92 to Apr 93 BSE Sensex -53.65% Rise Apr 93 to Apr 95 BSE Sensex 55.05%

Sep 94 to May 95 Jun 96 to Dec 96

Aug 97 to Jan 98 Apr 98 to Dec 98 Feb 00 to Oct 01 Jan 04 to May 04

-34.89% -30.90%
-29.43% -32.91% -48.27% -27.27%

May 95 to May 97 Dec 96 to Dec 98

Jan 98 to Jan 00 Dec 98 to Dec 00 Oct 01 to Oct 03 May 04 to May 06

26.09% 0.23%
66.25% 43.79% 69.08% 171.20%

May 06 to Jun 06

-29.20%

Jun 06 to Jun 08

70.11%

Market Recovery Analysis over the last 15 years

Historically markets have not only recovered, but usually have posted significant gains within 24 months after major falls over the last 15 years
Major falls over the last 15 years have been characterised as falls of greater than 25%.

Source: Capitaline, % fall & rise are in absolute terms

Sensex has provided robust returns over any 15 year period since 1980
Sensex returns 30% 25% 20% 15% 10% 5% 0% 24% 22% 20% 20% 16% 14% 10% 13% 12% 9% 13% 9% 16% 19%

Average 15%

1980-1995

1981-1996

1982-1997

1983-1998

1984-1999

1985-2000

1986-2001

1987-2002

1988-2003

1989-2004

1990-2005

1991-2006

1992-2007

Analysis of investments done on 1st of every year

1993-2008

PUT TIME ON YOUR SIDE

Equity Funds

5 Yr 3 Yr 1 Yr 0
11.5
31.9

100

88.5
68.1

50
%

100

150

-ve -ve returns returns(Funds) returns +ve

As your investment horizon expands, the probability of losing money reduces

The first available adjusted NAV and Sensex values for every month for a time period from 1/10/95 to 1/10/04 have been considered. Rolling returns for 1,3 and 5 year periods were found. The probability of loss(in red) was found by dividing the number of negative returns by the total return figures.

Source : Fidelity analysis

Rupee Cost Averaging

Price (NAV) 10 8 7 9 7 5 8 10 Total Amount 1000 1000 1000 1000 1000 1000 1000 1000 8,000 Units 100 125 142.8 111.1 142.8 200 125 100 1046.8

Total units purchased : 1046 Instead of 800 units that could have been purchased at Rs. 10 NAV for Rs. 8000 You get more for the same amount!

Impossible to precisely time the market Principle of Equitable Investments at regular intervals Entry into the market at varying levels More units can be purchased for same amount at lowered prices thus lowering average purchase price Instruments like SIP( Systematic Investment Plan) facilitate RCA

Indian Households Understand the Long term Needs But Do Not Plan For Those Adequately

97% said we must save, if chief earner expires

81% said its very important

69% said its very important

83% said its very important

47% said its very important

Only 9% can survive more than 1-year, upon the death of chief earner!

Only 8% said they can manage as per their current planning!

Only 2% said they can manage as per their current planning!

Only 3% said they can manage as per their current planning!

Only 19% said they can manage as per their current planning!

Source: MNYL - NCAER Study

Why ULIP is still a flavor?

Over a long term equity is the best asset class to

invest money Opportunity to participate in the economic growth of the country It beats inflation It offers real growth of the money Option to invest in the best of debt & equity through different funds Flexibility & maneuverability Top ups Diversification & Mitigation of Risks

Thank You