MULTIPLE ‐STRATEGY TREND RATED 

AUTOMATIC TRADING SYSTEM

Portfolio Management Services (PMS) Performance Update

31 January 201131 January 2011

Vivek Mavani – Vice President and Senior Portfolio Manager

BRICS Growth Synopsis

BRICS Growth is a Long only Diversified Equity Product aimed at generating Absolute Returns

The Objective is :

To generate Steady & Consistent returns over medium to long term

Maintain Low Volatility

Margin of Safetyg y

The Focus is therefore on Stock Picking with a Buy and Hold philosophy

Invest in high quality and high growth companies at reasonable valuations and hold themover a period of time. (Not trade in & out frequently)

Our conservative approach to managing investments, (especially during periods of volatility) isreflected in our superior performance.

Market Update – PerpectiveTh ti h f N b d D b ti d i t J lb it ith t f it WhilThe corrective phase of November and December continued into January albeit with greater ferocity. While Sensex & Nifty corrected by ~11% in January, (~13% from the peak), individual stocks corrected ~15-45% from the peak

Excess global liquidity drove the markets in 2009 and 2010 that came into the Indian markets (via the FII’s), saw sharp withdrawals in January 2011. With FII’s as sellers across the board and very limited buying interest on the domestic investors (both Institutional and non-institutional), it was a sharp correction

The accompanying table shows the correction of various indices in January as well as their correction from the peak in October-November 2010

Index Fall from Peak Fall in January Index Fall from Peak Fall in JanuaryNifty -12.78% -10.25% Sensex -12.75% -10.64%Bank Nifty -19.80% -9.75% BSE Auto -14.61% -13.10%S&P 500 14 86% 10 45% BSE Capital Goods 19 01% 12 25%S&P 500 -14.86% -10.45% BSE Capital Goods -19.01% -12.25%CNX Mid Cap -18.50% -10.55% BSE FMCG -10.08% -8.63%CNX IT -20.49% -12.00% BSE Metals -8.69% -8.41%CNX Realty -44.68% -22.69% BSE Oil & Gas -15.21% -10.56%

Although the sharp erosion in stock prices (individual stocks having corrected by 15-45%) makes it look like a bear market, the fall so far is a correction and not the beginning of a bear market, not as yet

Limiting the downside in the portfolio in such a scenario is always a huge challenge (unless one was totally out of the market.) Nevertheless, we managed to limit the downside to a large extent) , g g

Portfolio Update and Outlook (Cont’d)

Dilemma during the corrective phase in the markets:

Sell the portfolio and stay liquid. Attempt to re-enter at lower levels

Stay put holding the portfolio and see a temporary erosion in valueStay put holding the portfolio and see a temporary erosion in value

We did both selectively. During the month:

We largely exited from the Banking sector, (Axis Bank, ICICI Bank & Power Finance Corporation). If we had continued to hold them, (was ~20% of December 2010-end), the portfolio would have , ( ), pdeclined much more since all of them are currently significantly lower than our selling price. Thus we have managed to limit the downside to that extent

We stayed put in stocks/sectors where we continue to have a high degree of conviction, namely Technology sector (Infosys & TCS), Auto (Bajaj Auto) and Capital Goods Sectors (BHEL). AlthoughTechnology sector (Infosys & TCS), Auto (Bajaj Auto) and Capital Goods Sectors (BHEL). Although they have also corrected sharply, we would stay invested at least for now, as we feel these would bounce back fast when markets stabilise

We also reduced our Mid-cap exposure by booking profits. However, selectively mid-caps will continue to be an attractive space as individual performances are likely to shine amidst range bound marketsbe an attractive space as individual performances are likely to shine amidst range bound markets

Markets in 2011 are more likely to test Conviction & Patience. Stock picking is likely to be the key in generating superior returns

However, Credo of Sticking to Quality will always remain and will never be compromised, g Q y y p

Absolute Performance – 31 January 2011

Weekly Monthly Quarterly Half Yearly Annual Since Inceptionp

BRICS Growth -3.80% -9.47% -11.69% 3.25% 28.36% 36.70%

NIFTY -4.13% -10.25% -8.50% 2.58% 12.78% 8.31%

SENSEX -4.30% -10.64% -8.51% 2.57% 12.04% 6.96%

S&P CNX 500 -4.41% -10.45% -11.03% -1.13% 6.46% 7.42%

S&P CNX MIDCAP 4 36% 10 55% 15 36% 5 86% 10 01% 18 28%

Inception Date: 1 October, 2009 Portfolio returns are audited and Actual Returns to Investors After deducting fees (including performance fees) & other expenses

S&P CNX MIDCAP -4.36% -10.55% -15.36% -5.86% 10.01% 18.28%

g ( g p ) p

Performance ahead / at least keeping pace with IndicesMonth BRICS Growth Nifty Sensex S&P CNX 500 CNX Mid CapOct-09 -0.67% -7.31% -7.23% -6.46% -1.77%

Nov-09 2.79% 6.81% 6.48% 7.59% 8.65%

D 09 6 27% 3 35% 3 18% 4 43% 3 97%Dec-09 6.27% 3.35% 3.18% 4.43% 3.97%

Jan-10 -1.84% -6.13% -6.34% -4.00% -3.11%

Feb-10 0.75% 0.82% 0.44% -0.69% -0.48%

Mar-10 6 24% 6 64% 6 68% 4 50% 7 50%Mar-10 6.24% 6.64% 6.68% 4.50% 7.50%

Apr-10 3.77% 0.55% 0.18% 1.27% 4.62%

May-10 1.86% -3.63% -3.50% -3.24% -3.79%

Jun-10 5.81% 4.45% 3.83% 4.59% 4.83%Jun 10 5.81% 4.45% 3.83% 4.59% 4.83%

Jul-10 3.84% 1.04% 1.56% 1.23% 3.50%

Aug-10 7.25% 0.65% 0.58% 1.39% 3.14%

Sep-10 4.13% 11.35% 11.30% 8.06% 4.88%

Oct-10 4.03% 0.44% 0.38% 0.95% 1.68%

Nov-10 -4.26% -2.58% -2.55% -3.85% -4.84%

Dec-10 2.02% 4.64% 5.06% 3.34% -0.56%

Jan-11 -9.47% -10.25% -10.64% -10.45% -10.55%

Compared to Top 20 Mutual Funds as of 31 Jan. 2011

Ranked on 1 year returns

Rank Scheme Name Performance

6 Months % 1 Year % 1 BRICS Growth 3.25 28.362 Canara Robeco FORCE Fund IP Growth 1 54 25 042 Canara Robeco FORCE Fund - IP - Growth 1.54 25.043 HDFC Equity Fund - Growth 4.18 23.654 Escorts High Yield Equity Plan - Growth 4.71 23.395 Templeton India Equity Income Fund - Growth 11.04 23.136 Reliance Equity Opportunities Fund - Growth 0.49 22.987 Tata Dividend Yield Fund - Growth 3.75 22.218 Quantum Long-Term Equity Fund - Growth 4.45 22.119 Religare Mid N Small Cap Fund - Growth -2.94 21.4010 HDFC Mid-Cap Opportunities Fund - Growth -0.05 21.2311 ICICI Prudential Focused Bluechip Equity Fund - IP I - Growth 5.16 21.0811 ICICI Prudential Focused Bluechip Equity Fund IP I Growth 5.16 21.0812 Birla Sun Life Dividend Yield Plus - Growth -0.87 20.7813 UTI Dividend Yield Fund - Growth 4.66 20.4714 Reliance Quant Plus Fund - Ret - Growth 7.78 20.1915 Kotak Lifestyle Fund - Growth -1.22 20.1616 C R b E i E iti G th 1 75 20 1416 Canara Robeco Emerging Equities - Growth -1.75 20.1417 Sahara Wealth Plus Fund - VP - Growth -0.10 20.1318 ICICI Prudential Focused Bluechip Equity Fund - Ret - Growth 4.75 20.0819 ING Dividend Yield Fund - Growth -0.04 20.0020 HDFC Top 200 - Growth 3.31 19.68

The comparison includes 250 Diversified Equity Funds across all Fund Houses

BRICS Growth NAV Trend

Performance has been a result of our: Stock PickingLow churn in the portfolio, andConservative attitude (not taking

150

155

160

BRICS Growth NAV v/s Indices (normalised)

excessive risks)

Our Strategy has been to :Buy during panics/declinesUse sharp rallies to partially book profits 130

135

140

145

150

Use sharp rallies to partially book profitsOpportunistically ride the momentum for a part of the portfolio (<15%)Remain adequately liquid at all times

Ad t li idit h l 105

110

115

120

125

Adequate liquidity helps :Protect against volatilityProvides enough courage and conviction to buy into panics

85

90

95

100

105

Current cash/liquid balances ~ 29.21% of the Portfolio as of January-end 2011

1‐Oct‐09

1‐Nov‐09

1‐Dec‐09

1‐Jan‐10

1‐Feb‐10

1‐Mar‐10

1‐Apr‐10

1‐May‐10

1‐Jun‐10

1‐Jul‐1

0

1‐Aug

‐10

1‐Sep‐10

1‐Oct‐10

1‐Nov‐10

1‐Dec‐10

1‐Jan‐11

BRICS Growth Nifty Sensex

S&P 500 CNX Midcap

BRICS Growth Outperformance Trend

BRICS Growth has delivered absolute & consistent returns across different market phasesSignificant out-performance in a range bound volatile market, (Stock Picking was the Key)Kept pace even during the sharp rally (Buy and Hold, Profit booking at higher levels)Th f ll i NAV d i th ti h i li ith th I di (i it f h i

Date 1 October 2009 ─25 May 2010

25 May 2010 ─5 November 2010

5 November 2010 ─31 January 2011

The fall in NAV during the corrective phase was in line with the Indices (in spite of having ~20% exposure to Banking & Financial Services and ~30% in mid & small caps)

25 May 2010 5 November 2010 31 January 2011

Market Scenario Range bound Market

Sharp rally across the board Fall from the Peak

BRICS Growth 15.70% 36.73% -13.59%

Nifty -5.44% 31.32% -12.78%

Sensex -6.50% 31.10% -12.75%

S&P 500 -2.84% 29.86% -14.86%

CNX Mid-Cap 10.32% 31.54% -18.50%

Bank Nifty -0.10% 49.90% -19.80%y

How did we do during periods of Volatility – 12 Biggest Falls between Oct.-’09 – Jan.-’11

How much a portfolio falls during acorrection / sharp downturn is asimportant as how much it gains in abull market

Date Points Fall -Nifty

% Fall -Nifty

Points Fall -

Sensex

% Fall -Sensex

% Fall -BRICS Growth

27-Jan-2010 -159.65 -3.19% -490.64 -2.92% -2.29%Protecting capital is often moreimportant during periods of volatility

Downside protection equallycontributes to superior returns over a

03-Nov-2009 -147.80 -3.14% -491.34 -3.09% -0.36%

19-May-2010 -146.55 -2.89% -467.27 -2.77% -0.84%

25-May-2010 -137 20 -2 78% -447 07 -2 71% -1 62%pperiod of time

We have managed to fall less thanthe indices during each of the sharpfalls / panics since our inception

25-May-2010 -137.20 -2.78% -447.07 -2.71% -1.62%

05-Feb-2010 -126.70 -2.61% -434.02 -2.68% -0.47%

27-Oct-2009 -124.20 -2.50% -387.10 -2.31% -0.65%

21 J 2010 127 55 2 44% 423 35 2 42% 1 32%Large liquidity during periods ofvolatility & a low beta portfolio helped.

CNX

21-Jan-2010 -127.55 -2.44% -423.35 -2.42% -1.32%

10-Jan-2011 -141.75 -2.40% -467.69 -2.38% -1.92%

7-Jan-2011 -143.65 -2.38% -492.93 -2.44% -1.48%

*Beta measures the volatility of the

Against Nifty Sensex CNX Midcap

Beta * 0.4985 0.4992 0.5001

09-Dec-2010 -137.2 -2.32% -454.18 -2.31% -2.18%

01-Jun-2010 -116.10 -2.28% -372.60 -2.20% -1.24%

16-Nov-2010 -132.90 -2.17% -444.55 -2.19% -1.44%yportfolio relative to the index

Portfolio Breakup

Market Cap BreakupAutomobiles

6% Banking & Finance 6%

Oil & Gas 11%

Sectoral Allocation

Large Cap47.78%

Cash29.21%

Finance 6%

Branded Garments & Retail 12%

Infrastructure & Capital

Goods 13%

Small Cap15.75% Cash 29%

FMCG 10%

Information Technology

13%

Mid Cap7.26%

15.75% FMCG 10%

Large Cap. More than Rs 5,000 crores

Mid-Cap. Rs 1,000 - 5,000 crores

Small Cap. Less than Rs 1,000 crores

Low Portfolio Turnover (Buy & Hold at work)

0 90

1.00

Portfolio Turnover

Increased

Re-deployed part of liquid balances by buying on declines

0 60

0.70

0.80

0.90 Increased the Cash

levels Turnover increased as

we partly booked profits at higher levels

Turnover increased as we partly booked

profits at higher levels

0 30

0.40

0.50

0.60

times

0 00

0.10

0.20

0.30

0.00Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11

Portfolio Turnover

Market OutlookGl b l i i k I fl ti d hi h dit i ill ti t i h th k tGlobal macro economic risks, Inflation and higher commodity prices will continue to weigh on the markets. Will definitely have repercussions on India

Concerns on macro economic front, (Inflation, fiscal deficits, higher commodity prices etc.) necessitates tightening liquidity and higher interest rate cycle going forward. We feel that there is a long way to go on the interest rate cycle. This could threaten to slowdown the “India Growth Story.”

Excess global liquidity was the primary reason for the sharp rallies across all emerging markets in 2009 and 2010. However, we are already seeing the impact of marginal withdrawal of liquidity as foreign fund flows reversed in January 2011

Although Valuations have corrected significantly in the last three months, they are reasonable but still not cheap when seen in light of growth outlook going forward. Earnings estimates for FY12 are likely to be revised down post the current results season

( ) fWe had anticipated (and mentioned in our previous updates) about sharp declines in stock prices if corporate earnings disappoint. Several large and prominent corporates actually disappointed on earnings or growth outlook going forward

Where the earnings were in line, the earnings growth going forward raises concerns on back of :

Increasing interest rates and tight liquidity, making capital raising both difficult and expensive

Higher commodity prices across the board, (cost pressures are already beginning to be felt)

Little flexibility in increasing the end product prices thus putting pressure on marginsLittle flexibility in increasing the end product prices, thus putting pressure on margins

Market Outlook (cont’d)

Key Investment Theme in 2011

Focus on stocks/sectors where growth in sales and earnings is not sensitive to:

Interest rates (both for themselves as well as their end customers)

They have reasonable pricing power to pass on higher costs as a result of higher commodity prices, and thus protect margins

Valuations v/s growth favour bottom up stock picking across the spectrum (large and mid-cap), rather than t d h I di id l f ld h id i thtop-down approach. Individual performances could have a wide variance among the peer group

Stocks/Sectors to avoid are those where growth is dependent on fresh issue of capital (both debt and equity) as tight liquidity would make fund raising both difficult and expensive. This will have serious implications on growth

Pockets of opportunities are still available in stocks/sectors where growth is steady, are adequately funded and valuations leave room for upside

It is quite possible, that in 2011 will see indices in a broad range but individual stocks could give excellent t St k i ki ill b th kreturns. Stock picking will be the key

It is a good time to build a high quality long term portfolio by Buying on Declines

However, Markets in 2011 are likely to Test Conviction & Patience

Our Strategy“Ti ” i th k t i i t t th “Ti i ” th k t“Time” in the markets is more important than “Timing” the markets

Superior long-term sustainable returns are not made by timing the markets in terms of selling atthe peaks. They are a result of purchase prices that are attractive in terms of valuations withadequate Margin of Safety

Our strategy going ahead would continue to be, bottom up stock picking and be extremelyselective:

Buy on declinesUse sharp rallies to partially book profitsOpportunistically ride the momentum for only a small part of the portfolioRemain adequately liquid at all times

The sectors that we are bullish and continue to be over weight are:Technology (Software Services),Technology (Software Services),Capital Goods and Infrastructure ConstructionOil and Gas including Gas Transportation & Distribution,Domestic Consumption themes like FMCG, Paints, Branded Garments, etc.

Happy Investing

Thank You

Vivek Mavani – Vice President & Senior Portfolio Managervivek.mavani@bricssecurities.com

BRICS SECURITIES LIMITEDBRICS SECURITIES LIMITED1st Floor, Sadhana House,570, P. B. Marg,Behind Mahindra Towers,Worli, Mumbai – 400 018.Tel: 91 22 6636 0000Tel: 91-22-6636 0000.