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Eastern Financiers Limited Kolkata

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NIFTY

OUT-PERFORMANCE

STRATEGY

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EF - NIFTY Out-performance Strategy

• “Price is What You Pay. Value is what you get.”

• “Risk comes from not knowing what you are doing”

• “It’s far better to buy a wonderful company at a fair price, than to buy a fair company at a wonderful price” - Warren Buffet

• “Markets change, tastes change, so the companies and the individuals who choose to compete in those markets must change” - An Wang, Chinese American Physicist

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S&P CNX NIFTYCalendar Year Performance

Date Open High Low Close G/L (Rs.) G/L (%)2002 1,058.85 1,205.95 920.10 1,093.50 2003 1,093.60 1,914.40 920.00 1,879.75 786.25 71.90 2004 1,880.35 2,088.45 1,292.20 2,080.50 200.75 10.68 2005 2,080.00 2,857.00 1,894.40 2,836.55 756.05 36.34 2006 2,836.80 4,046.85 2,595.65 3,970.55 1,134.00 39.98 2007 3,966.25 6,185.40 3,554.50 6,138.60 2,168.05 54.60

YTD 5th Aug '08 6,136.75 6,360.45 3,790.20 4,502.85 (1,635.75) (26.65)

NIFTY YEARLY DATA

From 2003 onwards, the NIFTY has given Double Digit gains, while in the calendar year 2008 (until 5th Aug), the returns are -26%

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Date Open High Low Close G/L (Rs.) G/L (%)2002 304.90 344.00 218.05 297.95 2003 300.80 582.80 257.15 572.85 274.90 92.26 2004 580.00 650.00 381.70 533.70 (39.15) (6.83) 2005 539.40 900.85 490.00 889.30 355.60 66.63 2006 893.00 1,315.95 580.10 1,270.15 380.85 42.83 2007 1,275.00 2,989.00 1,248.20 2,882.70 1,612.55 126.96

YTD 5th Aug '08 2,890.00 3,298.00 1,920.00 2,276.05 (606.65) (21.04)

RELIANCE INDUSTRIES LTD

RELIANCE INDUSTRIES LTD.Calendar Year Performance

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Date Open High Low Close G/L (Rs.) G/L (%)2006 99.95 105.00 58.05 62.85 2007 62.85 294.95 58.10 223.40 160.55 255.45

YTD 5th Aug,'08 223.80 259.80 107.25 173.70 (49.70) (22.25)

RPL

RELIANCE PETROLEUM LTD.Calendar Year Performance

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Date Open High Low Close G/L (Rs.) G/L (%)2002 695.00 949.40 485.25 593.90 2003 598.45 1,171.00 537.50 1,095.25 501.35 84.42 2004 1,109.00 1,279.40 866.60 1,251.15 155.90 14.23 2005 990.00 1,135.00 339.05 362.75 (888.40) (71.01) 2006 363.00 530.00 317.00 391.80 29.05 8.01 2007 391.00 459.80 304.50 425.50 33.70 8.60

YTD 5th Aug,'08 428.00 660.00 297.05 516.75 91.25 21.45 Note: In the year 2004, a Bonus declared of 2 shares for every 1 share heldSo, the Annual Fall is below 8%

RANBAXY

RANBAXY LTD.Calendar Year Performance

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Date Open High Low Close G/L (Rs.) G/L (%)2002 89.95 164.40 85.95 140.50 2003 141.45 310.00 119.05 295.45 154.95 110.28 2004 297.90 379.80 211.55 371.35 75.90 25.69 2005 375.00 614.95 325.20 585.05 213.70 57.55 2006 587.70 925.00 435.00 891.50 306.45 52.38 2007 892.00 1,349.00 791.00 1,238.70 347.20 38.95

YTD 5th Aug,'08 1,240.00 1,455.50 514.00 694.10 (544.60) (43.97)

ICICI BANK

ICICI BANK LTD.Calendar Year Performance

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Relative StrengthNIFTY -vs- Reliance Inds / ICICI Bank

Nifty G/L (%) % relative

strength G/L (%) % relative

strength

Date G/L (%) over Nifty over Nifty20022003 71.90 92.62 20.72 110.28 38.38 2004 10.68 (6.83) (17.51) 25.69 15.01 2005 36.34 66.83 30.49 57.55 21.21 2006 39.98 42.83 2.85 52.38 12.40 2007 54.60 126.96 72.36 38.95 (15.65)

YTD 5th Aug,'08 (26.65) (21.04) 5.61 (43.97) (17.32)

RELIANCE INDS ICICI BANKINFERENCE:

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We see that although the NIFTY has gained between the period 2003-2007, there was script-specific out-performances / under-performances during the same period.

In the year 2007, while the NIFTY was up 54%, if we had purchased RIL we would have gained 126.96%, a net gain of 72.36% over NIFTY gains.

Instead, if we had bought Ranbaxy on 1st Jan 2007, we would have been up only 8%, a net loss of 48.6% compared to the NIFTY.

So, we infer that the process of stock selection is very important.

I n f e r e n c e

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Only those Stocks which have a good dividend payment record to be considered

1) Stocks that offer GROWTH Opportunities or VALUE OpportunitiesGrowth Opportunities: A growth stock is that stocks that, in the next 2-3 years, is expected to grow its top line & bottom line more than the market average and the stock is available for less than P/E growth of below 1.5 times. When the markets fall below fair value, these stocks tend to show relative strength (they fall less then the market) Value Opportunities: A profitable company with a High Dividend Yield & a High Book Value whose stock price has fallen due to adverse market conditions. Eg. ICICI Bank, which has a good dividend yield and the value of its subsidiaries is around 60% of its current market cap. It is the second largest bank in the country, and with worldwide inflation showing signs of slowing down, we can start accumulating with a 3 year horizon.

2) We invest in 10 NIFTY stocks, investing a fixed sum every month in any of the identified stocks, in which no individual stock will have a weightage of more than 15%

3) 70% of the portfolio will be with a long term horizon & about 30% will be used for short-term positions (for short-term opportunities that are available in the market)

We have identified a few NIFTY STOCKS which are discussed later on...

Parameters for stock selection

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2001 F M A M J J A S O N D 2003 A M J J A S O N D 2004 A M J J A S O N D 2005 A M J J A S O N D 2006 A M J J A S O N D 2007 A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J W

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NIFTY (4,331.60, 4,615.90, 4,235.70, 4,517.65, +184.700)

Nifty monthly chart shows the secular bull run from 2003-2007.

NIFTY Monthly Chart from 2001-2008

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2001 2003 2004 2005 2006 2007 2008 2009

0100200300400500600700800900

10001100120013001400150016001700180019002000210022002300240025002600270028002900300031003200330034003500RELIANCE (2,170.05, 2,349.80, 2,153.00, 2,298.60, +91.1001)

The Reliance Monthly Stock Chart shows the relative out performances over a long period of time.

RELIANCE INDS Monthly Chart from 2001-2008

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2006 Jun Jul Aug Sep Oct Nov Dec 2007 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 Feb Mar Apr May Jun Jul

404550556065707580859095

100105110115120125130135140145150155160165170175180185190195200205210215220225230235240245250255260265270275280285290295300305310315

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RPL (165.000, 176.900, 162.100, 169.100, +4.3500), Parabolic SAR (187.800)

RELIANCE PETRO Monthly Chart from 2006-2008

RPL is consolidating and a breakout from Rs.180 levels can take it to Rs.215-225.

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PORTFOLIO STRUCTURE

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PORTFOLIO STRUCTURE . . . 1

• HIGHLY CONCENTRATED, but SECTOR-DIVERSIFIED: We plan to identify 9-10 Nifty stocks with a Maximum weightage of 15% per stock from sectors like Oil & Gas, Software, Financial Services, etc.

• INVESTMENT STYLE: Focus on those stocks which have high probability of outperforming the S&P CNX NIFTY by identifying stocks through fundamental research parameters like P/E Ratio, EPS, Cash-Flow analysis and through technical methods like relative strength analysis for value stocks. We will concentrate on High Dividend yield, Low Price-to-Book Value and Catalysts which will change the perception of the stock in the medium to long term.

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PORTFOLIO STRUCTURE . . . 2

• RISK PROFILE: Medium risk to be undertaken in the entire exercise. As cash is infused into the markets at regular intervals, we will be able to average-out the costs of the stocks in the portfolio.

• STRATEGY: 50-70 Percent of the portfolio will be invested for the long term which can offer long term benefits along with the re-investment of dividend. The rest 30-50 Percent will be invested to capitalize the short term gains which the stock offers (when prices rises by large percent in a very short period of time). For this purpose, we can use prudently the “Covered-Call” strategy and when the markets are down we can effectively sell Put Options of the particular stocks we select.

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STOCK SELECTION

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STOCKS SELECTION . . . 1

Stocks from the S&P CNX NIFTY which we feel will be out-performers :-

RELIANCE INDUSTRIES• Equity capital: Rs. 1,453 crores.• Market Cap : Rs. 3,33,000 crores• P/E Ratio : 16.7x• EPS : Rs. 137

We believe the company will double its profit from Rs. 19,458 crores to about Rs. 39,000 crores by the year-ended March 2010 due to the reasons mentioned below:

- Start of commercial production of KG Basin Gas by Oct 2008- Start of commercial production of its subsidiary Reliance Petroleum and

Capex to be completed by 2009 which will increase capacities

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Reliance PetroleumThe company will start commercial production from Oct 2008 onwards and these refineries has a capacity of 29 million barrels a year of processing Crude. The trigger will be the ability of the company to capitalize on global refining shortages.

ICICI BankA value stock which has fallen above 60% from its peak. Company has a market cap of Rs. 79,000 crores, a Dividend Yield of 2% (Last Div: 30%) & book value of Rs. 417.

A very low book value compared to its price, as the valuation of its subsidiaries are not accounted for in the price. The trigger would be a decrease in the price of oil and inflation rate.

STOCKS SELECTION . . . 2

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RanbaxyWith the change of ownership, Daiichi Sankyo Limited taking over from Malvinder Singh, we expect the company to grow aggressively and develop. So, the possibility of a de-listing of Ranbaxy stock in the future cannot be ruled out. A 2-year price target of Rs. 700 looks possible. Settlement with Pfizer is an important catalyst going forward.

DLF The stock looks best in the real estate sector. High promoter stake of 88% shows the promoters’ confidence in running the company. The open offer at Rs. 600 makes us believe that once liquidity conditions improve, the stock could be an out-performer.

STOCKS SELECTION . . . 3

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Other Stocks on our list are:1. State Bank of India

For its subsidiary valuation and huge asset base

2. NTPC

With the nuclear deal going through, the focus of the planning commission is on setting up of additional power capacity. We believe that this is one of the cheapest power stocks in Indian Markets

3. ONGC

A good dividend-yield stock having its own oil-fields. Only negativity in the stock is that it has to share the subsidy burden of the Government.

4. L&T, BHEL and Infosys are the contrarians stocks with sound fundamentals which will be explored at a later stage.

STOCKS SELECTION . . . 4

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For a long-term investor, stock selection is very important.

Fundamental Factors: The parameters to be used are PE Ratios, Price to Book Value, High Dividend Yield, Increase in Sales & Profits by a decent %age year-on-year. The value investor should understand when the business cycles change & take a contrarian call Technical Factors: Parameters to be considered are Relative Strength Analysis and trend indicators like Moving Averages

As the investment style is systematic investing at regular intervals, we are averaging the costs of purchase at various levels. This strategy, historically, shows above-average performances during a long period of time

S U M M A R Y

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H A P P Y I N V E S T I N G!

Analyst Disclosure : This Report has been prepared by Chetan Panchamia , Head - Equity Research and Atul Gupta, Director, Eastern Financiers Ltd., Kolkata. Either Eastern Financiers Ltd. or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s) in the above stock.

This report is in no way an inducement or offer to buy. The contents are purely based on informations already available to the public and data compiled from other sources considered reliable. All steps have been taken regarding the authenticity of the contents. However neither Eastern Financiers Ltd. or its Directors or its employees shall in any way be responsible to anybody for actions taken based on these contents. No matter contained in this report may be reproduced or copied without the prior consent of Eastern Financiers Ltd.