Strategy - Reliance Mutual Fund have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making

Ambit Capital and or its affiliates do and seek to do business including investment banking with companies covered in its research reports As a result investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report Investors should not consider this report as the only factor in making their investment decision

Can lsquovaluersquo investors make money in India

In this note we address the age-old debate on lsquovaluersquo vs lsquoqualityrsquo Whilst lsquovaluersquo delivers over shorter time frames (a year or less) the value premium tends towards zero over longer time frames say 10 years This is because whilst valuations dominate short-term performance earnings growth dominates over longer time frames Earnings growth in turn is the weakest for the cheapest stocks Further value and quality are not mutually exclusive we highlight a few high-quality companies trading at reasonable valuations from our Coffee Can Portfolio (CCP) and ten-bagger portfolios

The value vs quality debate Our investment approach centers on investing in quality businesses for the long term our Ten-bagger and Coffee Can portfolios are both modeled on this philosophy Further we have tilted towards being agnostic to valuations in these portfolios as we believe that after screening for quality adding a further valuation filter does not enhance performance Yet at the same time the existence of a value premium has been well documented especially in the Western context In this note we address this disconnect between the two approaches value and quality Value delivers over shorter time frames of around a yearhellip Analysing the performance of quintiles based on PE suggests that low PE works well thus supporting the existence of value premium The performance of lsquovaluersquo is best over a one-year holding horizon and the premium dissipates as the holding horizons increase Moreover earnings growth remains weak for the cheaper quintiles suggesting that it is a rerating in valuation multiples that drives the near-term outperformance for lsquovaluersquo stocks hellipand the value premium dissipates over longer-term horizons The link between beginning period valuations and stock returns becomes weaker over long time frames and approaches zero on a ten-year basis Thus whilst valuations play an important role in driving stock returns in the near term in the long run it is the underlying trajectory of fundamentals that drives returns with valuations tending towards irrelevance Thus lsquovaluersquo stocks with poor earnings growth do not deliver over longer holding horizons However value and quality are not mutually exclusive Stocks become expensive for several reasons such as investors betting on a revival Similarly good companies may go out of favour due to near-term concerns and may become cheap Thus quality and value should not be seen as mutually exclusive groups In fact a distribution of firms with RoCEs of gt15 suggests that such firms are uniformly distributed across PE quintiles (like the distribution of our Ten-bagger and Coffee Can firms too) Combining value and quality on the other hand should thus improve returns further

THEMATIC April 29 2015

Strategy

High-quality companies from our model portfolios trading at reasonable valuations

Ticker Company name

Trailing PE

Part of which portfolio

TCS IN TCS 245 Ten-baggers

ITC IN ITC 286 Coffee-can Ten-baggers

HDFCB IN HDFC Bank 240 Coffee-can

COAL IN Coal India 174 Ten-baggers

TTMT IN Tata Motors 103 Ten-baggers

HCLT IN HCL Tech 172 Coffee-can Ten-baggers

AXSB IN Axis Bank 181 Coffee-can

IDEA IN Idea Cellular 226 Ten-baggers

TRP IN Torrent Pharma 238 Ten-baggers

MRF IN MRF 141 Ten-baggers

MTCL IN Mindtree 194 Ten-baggers

IPCA IN Ipca Labs 217 Coffee-can Ten-baggers

BIL IN Balkrishna Inds 151 Coffee-can

CUBK IN City Union Bank 131 Coffee-can

PSYS IN Persistent Sys 191 Ten-baggers

ECLX IN eClerx Services 198

Coffee-can Ten-baggers

FNXC IN Finolex Cables

193 Ten-baggers

SF IN Sundram Fasten

272 Ten-baggers

GDPL IN Gateway Distr

222 Ten-baggers

VST IN VST Inds 173 Ten-baggers

MUNI IN Mayur Uniquoters

Coffee-can

Source Bloomberg Ambit Capital research Note These are stocks from our model ten-baggers and Coffee Can portfolios that fall in Q3 Q4 or Q5 on trailing PE

Analyst Details

Gaurav Mehta CFA +91 22 3043 3255

gauravmehtaambitcapitalcom

Karan Khanna

+91 22 3043 3251

karankhannaambitcapitalcom

The lsquovalue premiumrsquo dissipates in India as holding horizons increase

Source Company Ambit Capital research Note Value premium is the excess returns for the cheapest quintile on trailing PE vs the average returns for the remaining four quintiles

1-yr 2-yr 3-yr 4-yr 5-yr 10-yr

Value premium

Strategy

April 29 2015 Ambit Capital Pvt Ltd Page 4

lsquoValuersquo vs lsquoqualityrsquo The debate on what matters more value or quality has always been a hotly contested one and has gained more prominence recently given the sharp share price correction in many of the expensive good-quality names

Our preferred investment approach traditionally has been to invest in Good amp Clean companies which implies investing in firms with high corporate governance standards and an efficient capital allocation track record Our Coffee Can and ten-bagger portfolios have been modeled on this approach (click here for our 17 November 2014 note on the ldquoCoffee Can Portfoliordquo and here for our 5 January 2015 note on ldquoTenbaggers 40rdquo) In creating these portfolios we have been agnostic to valuations as beginning period valuations do not stay as relevant in shaping long-term returns after having been already screened for quality

In our 20 November 2014 note ldquoRole of valuations in long-term investment successrdquo we had shown that the five Coffee Can portfolios from 2000 to 2004 had gone on to beat the Sensex over the subsequent ten years in spite of higher beginning PEs

Exhibit 1 Coffee Can portfolios beat the Sensex in spite of higher beginning period valuations CAGR returns for ten-year period startinghellip

CCP All-cap returns

Sensex returns

Beginning-period Sensex PE

Beginning-period CCP PE

30 June 2000 ndash 30 June 2010 167 141 227 318

29 June 2001 ndash 30 June 2011 217 185 169 201

28 June 2002 ndash 29 June 2012 190 183 142 160

30 June 2003 ndash 28 June 2013 251 183 117 129

30 June 2004 ndash 30 June 2014 316 181 125 135

Source Bloomberg Ambit Capital research

Another plot that we have often used to illustrate this point on valuations is displayed in Exhibit 2 below This exhibit plots FY04 valuations as measured by PE vs ten-year relative returns over FY04-14 for the BSE200 universe of firms

The value of the R-squared makes the story self-explanatory A zero for this value indicates that the beginning-period valuations do not play any meaningful role in explaining stock returns over the next ten years

Exhibit 2 Data over FY04-14 suggests beginning period valuations do not materially influence investment returns over longer time frames

Source Ambit Capital research Note FY04-14 returns here are stock returns relative to Sensex Trailing PE has been restricted to 100

Whilst our approach of sticking to quality irrespective of valuations has worked so far (in both back-tested and live portfolio performances) there is ample literature available especially in the developed world context to suggest that value investing does deliver outperformance Thus in this note we address this disconnect between the two approaches value and quality

Rsup2 = 00025

- 200 400 600 800 1000

FY04 price to earnings

In this note we address the age-old debate on lsquovaluersquo vs lsquoqualityrsquo

Strategy

lsquoValuersquo delivers over shorter time frames To test the performance of value investing in India historically we begin by defining value as stocks trading at cheap valuations (as measured by trailing PE) The market (ie BSE200 Index) is divided into five quintiles based on the trailing PE multiple and performance is measured over the subsequent year with an annual rebalance of the portfolio over the last 15 years (The portfolio rebalance is done as of the end of March every year with the prevailing share price on that day and the preceding Financial Yearrsquos earnings)

The rolling one-year returns for quintiles constructed using beginning period PE suggests that a lsquolow PErsquo strategy indeed works very well over shorter time frames Using average returns whilst the most-expensive quintile (ie Q1) has delivered CAGR returns of 10 over the last 15 years the cheapest quintile on PE (ie Q5) has managed to deliver CAGR returns of ~22 We see this as strong evidence in favour of the existence of a lsquovaluersquo premium

Exhibit 3 Rolling one-year performance of PE quintiles (with Q5 being the cheapest quintile) over the last 15 years (average basis)

Source Bloomberg Ambit Capital research Note The portfolio rebalance is done on 31st May every year Stocks with trailing PEs above 100 have been excluded from the universe Performance for the latest year has been updated till 27 April 2015

The premium continues to exist even if we use median returns instead of average returns suggesting this value premium is not the result of a few outliers On a median basis whilst the cheapest quintile has delivered CAGR returns of ~14 the most expensive quintile has delivered CAGR returns of ~6 This translates into a performance differential of ~8 for Q5 vs Q1 on a CAGR basis

Exhibit 4 Rolling one-year performance of PE quintiles over the last 15 years (median basis)

Rolling one-year returns for quintiles constructed using trailing PE suggests value delivers over time frames such as a year

Strategy

Thus it is evident from the discussion above that over shorter time frames a lsquovalue-orientedrsquo strategy seems to have worked well historically However as can also be seen very clearly from these two exhibits performance of lsquovaluersquo has a degree of cyclicality to it In the past four years the Q5 worm seems to have stagnated even as Q1 has continued to rise This is in line with our previous work on the subject (see here) that lsquovaluersquo delivers in periods of conducive macro but does not when the macro turns challenging

The idea of the current work however is to assess the performance of lsquovaluersquo on a very long-term cross-cyclical basis In that context at least over a one-year holding horizon lsquovaluersquo has delivered in the past 15 years Whether or not does the value premium continue to exist for longer holding periods (say 3 5 and 10 years) is what we address in the next section

Strategy

The lsquovaluersquo premium dissipates over longer horizons As discussed in the previous section there seems to be evidence of the existence of a significant value premium on a one-year basis In this section of the note we analyse whether or not the value premium remains over longer time frames as well

Exhibit 5 below shows the average returns for the quintiles constructed using beginning period valuations over different time horizons for the last 15 years

Exhibit 5 Performance of value over different time horizons

Quintiles based on beginning PE

Subsequent returns

Q1 83 105 125 132 136 133

Q2 144 145 154 167 177 171

Q3 127 136 153 152 158 133

Q4 130 123 126 136 135 114

Q5 168 163 159 150 141 94

average (Q1-Q4) 121 127 140 147 152 138 Value premium (Q5 minus average) 47 35 20 03 -10 -44

Source Bloomberg Ambit Capital research Note stock returns for a quintile at any point in time are on a median basis quintiles returns have then been averaged over time Stocks with trailing PEs above 100 have been excluded from the universe

An analysis of the returns for these quintiles over longer time frames suggests that whilst the value quintile continues to outperform as can also be seen in Exhibit 6 below the lsquovalue premiumrsquo dissipates over longer holding horizons

Exhibit 6 The lsquovalue premiumrsquo dissipates as holding horizons increase

Thus whilst value works well over shorter time frames the link between beginning period valuations and stock returns gets weaker over long time frames and approaches zero on a ten-year basis This also explains the zero R-Squared thrown up by a regression of beginning valuations and the subsequent ten-year returns in Exhibit 2 (page 4)

One direct conclusion from this analysis is that whilst valuations play an important role (PE in this case) in driving stock returns in the near term it is the underlying trajectory of fundamentals (earnings in this case) that drives returns in the long run with valuations tending towards irrelevance We explore this point in the next section

Value premium

The value premium dissipates over longer holding horizons

Strategy

Decomposition of the lsquovalue premiumrsquo That returns are significantly affected by valuations in the near term but are driven by fundamental performance in the long term seems to the key learning from the findings of the previous section We will shortly demonstrate this with actual numbers at the stock level for the five PE-based quintiles but before that going through a deconstruction of returns at the index level into these two components - valuation change and earnings growth - is equally enlightening

As is evident from Exhibit 7 below on a YoY basis valuation rerating has been the single biggest driver of Sensex returns In contrast over longer time horizons Sensex returns have largely been driven by earnings compounding The 15 CAGR returns delivered by Sensex has broadly mirrored its earnings growth over the same time horizon (see Exhibit 8 below)

Exhibit 7 Whilst PE seems to be a bigger driver of Sensex returns over shorter time frameshellip

Source Ace Equity Ambit Capital research Note Both Sensex returns and change in PE have been calculated on a yearly basis starting from Decrsquo 90

Exhibit 8 hellip Sensex returns have mirrored EPS growth over long periods

Source Ace Equity Ambit Capital research Note Both Sensex and Sensex EPS have been rebased to 100 at the beginning of Janrsquo 91

Thus over the long term returns mirror earnings growth even as they are primarily driven by valuation changes in the shorter term at the index level

Coming back to stocks a decomposition of returns of the PE quintiles is shown in Exhibits 9 and 10 below Even as earnings growth stays weakest for Q5 and strongest for Q1 Q5 still manages to outperform over shorter time frames primarily owing to a valuation rerating (vs a derating for Q1) over shorter time frames

Over longer time horizons however the valuation rerating that explains the value premium becomes much smaller in magnitude in comparison to earnings growth Further earnings that become much more important over longer time horizons are significantly inferior for the value quintile vs the other quintiles (see Exhibit 9 below) As a result the premium that value enjoys on a one-year basis gradually tapers off over time

Exhibit 9 Even as earnings growth is weakest for Q5 and strongest for Q1hellip

Quintiles based on beg PE

Subsequent earnings growth

Q1 347 277 255 233 213 176

Q2 211 186 177 176 175 164

Q3 120 116 127 125 125 120

Q4 27 64 68 94 99 127

Q5 -15 30 56 64 69 70

average (Q1-Q4) 176 161 157 157 153 147

Q5 minus average -192 -131 -101 -93 -84 -77

Rsup2 = 07912

(600) (100) 400 900Sens

change in trailing PE ()

SensexSensex EPS

Whilst returns are primarily driven by valuation changes over shorter time frameshellip

hellipearnings become much more important over longer time horizons

Strategy

Exhibit 10 hellipvaluation changes ensure better returns for Q5 over shorter time frames

Subsequent earnings multiple change

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

Given that investing in high-quality franchises with strong longer-term outlooks has traditionally been the cornerstone of our investment philosophy it is encouraging to see that earnings growth - and not valuations - is a more important driver of investment returns over the long term

A lsquobacktestrsquo of the returns from our Coffee Can Portfolios corroborates this finding As is evident from Exhibit 11 below the ten-year returns of these portfolios have more or less converged to the earnings growth over the period with valuations (ie PE expansion) becoming almost irrelevant

Exhibit 11 CCP return decomposition shows that earnings growth is the biggest driver of portfolio returns Iteration Run-period Total returns PE expansion Earnings growth

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

However before we conclude this discussion there are two points that need to be elaborated upon

a) Are lsquovaluersquo and lsquoqualityrsquo mutually exclusive

Whilst everything boils down to earnings growth in the long term does value working over shorter time frames in turn imply that quality does not deliver over such horizons

b) Why long term

Why do we place so much emphasis on lsquolong-termrsquo investing After all as Keynes famously said ldquoin the long term we are all deadrdquo

Strategy

Are value and quality mutually exclusive Given that value works well over intermediate time frames one could conclude that quality does not over such time frames More generally there is a tendency to equate value with low quality and vice versa

This view gets further enforcement from the fact that forward-looking earnings growth for Q5 stays much weaker vs Q1 suggesting that Q5 indeed comprises low-quality stocks However it is important to note that growth in accounting earnings is not in itself a conclusive evidence of quality (a company like Arshiya for example showed stellar EPS growth of ~35 over FY07-12 however Arshiya does not qualify on Ambitrsquos ldquoGood amp Cleanrdquo criteria by any stretch of the imagination)

Using RoCE as another dimension of quality we tabulate the distribution of firms with RoCEs of more than 15 across the five PE quintiles in Exhibit 12 First contrasting the performance of firms in these quintiles with RoCEs of more than 15 with that of the full quintile clearly suggests that superior RoCE leads to superior performance

More importantly the distribution of quality (defined as firms with RoCE greater than 15) across the five quintiles is more or less uniform with concentration in Q1 not being materially higher versus other quintiles

Exhibit 12 RoCE distribution in the PE quintiles

of firms

with RoCEgt15

Median returns [over May 00-May 15]

for all firms in the quintile

Median returns [May 00-May 15]

for firms with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Source Bloomberg Ambit Capital research Note Universe is BSE200 index rebalanced annually Performance has been measured over May 00 ndash May 15

Similarly a distribution of our ten-bagger and CCP firms across the five quintiles has been displayed in Exhibit 13 below Given the stringent quality filters that we use to construct these portfolios one would expect these stocks to be trading at expensive valuations (and hence dominate Q1) especially given that quality has performed so well over the last few years

Yet what is evident from the exhibit below is that these portfolios are again uniformly spread across the first four PE quintiles (very few of these firms lie in Q5 the lowest PE quintile)

Exhibit 13 Distribution of our ten-bagger and CCP firms across the five PE quintiles

Q1 Q2 Q3 Q4 Q5 Total

Ten-baggers 23 23 37 13 3 100

Coffee-can portfolio 25 19 31 25 0 100

Source Bloomberg Ambit Capital research Note This is the distribution of our Ten-baggers 40 portfolio published on 05 January 2015 and our Coffee-can portfolio published on 17 November 2015 using trailing PE as on 23 April 2015

Similarly the distribution of our first three ten-bagger portfolios published once every year for the last three years across the five PE quintiles (basis the trailing multiples at the time of publication of the respective portfolios) is shown in Exhibit 14 below Here too the distribution is relatively uniform especially in the first four quintiles suggesting there is no undue concentration of these stocks in Q1

Distribution of high RoCE firms across the five quintiles is more or less uniform

Even our ten-bagger and CCP firms are uniformly spread across the first four PE quintiles

Strategy

Exhibit 14 Distribution of our first three ten-bagger portfolios across the five PE quintiles

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

Source Bloomberg Ambit Capital research Note This is the distribution of the first three iterations of our Ten-baggers portfolio published on 19 January 2012 14 January 2013 and 26 November 2013 using trailing PE as on date of publication excludes Tata Power as the company made losses on a trailing twelve month basis

In conclusion stocks may become expensive for several reasons like investors betting on a revival in the economy in general or a turnaround for a company in particular Similarly good-quality companies may go out of favour due to near-term concerns and may become cheap Therefore quality and value should not be seen as mutually exclusive groups This also helps reconcile why our ten-bagger portfolios have continued to deliver each year even as the findings of this research piece suggest that value works well over time frames such as a year Combining value and quality on the other hand wherever possible should improve returns further

In that context several quality companies that comprise our Coffee Can and ten-bagger 40 portfolios are also trading at reasonable valuations This short list of (CCP and ten-bagger) firms that fall in Q3 Q4 or Q5 on trailing PE currently is shown in Exhibit 15 below

Exhibit 15 High-quality companies from our model portfolios trading at reasonable valuations

Ticker Company name Mcap (US$ mn)

6M ADV (US$ mn)

Trailing PE

Quintile on trailing earnings

Features in which Ambit portfolio

TCS IN TCS 77309 519 245 Q3 Ten-baggers

ITC IN ITC 42801 536 286 Q3 Coffee-can Ten-baggers

HDFCB IN HDFC Bank 39831 326 24 Q3 Coffee-can

COAL IN Coal India 37210 260 174 Q4 Ten-baggers

TTMT IN Tata Motors 26418 427 103 Q5 Ten-baggers

HCLT IN HCL Tech 19357 368 172 Q4 Coffee-can Ten-baggers

AXSB IN Axis Bank 20074 510 181 Q4 Coffee-can

IDEA IN Idea Cellular 10919 166 226 Q3 Ten-baggers

TRP IN Torrent Pharma 3188 18 238 Q3 Ten-baggers

MRF IN MRF 2504 98 141 Q4 Ten-baggers

MTCL IN Mindtree 1551 44 194 Q3 Ten-baggers

IPCA IN Ipca Labs 1277 43 217 Q3 Coffee-can Ten-baggers

BIL IN Balkrishna Inds 1130 20 151 Q4 Coffee-can

CUBK IN City Union Bank 869 14 131 Q4 Coffee-can

PSYS IN Persistent Sys 894 25 191 Q3 Ten-baggers

ECLX IN eClerx Services 760 13 198 Q3 Coffee-can Ten-baggers

FNXC IN Finolex Cables 666 14 193 Q3 Ten-baggers

SF IN Sundram Fasten 595 07 272 Q3 Ten-baggers

GDPL IN Gateway Distr 622 22 222 Q3 Ten-baggers

VST IN VST Inds 408 02 173 Q4 Ten-baggers

MUNI IN Mayur Uniquoters 299 05 224 Q3 Coffee-can

Source Bloomberg Ambit Capital research Note Universe for the purpose of arriving at the quintile on trailing valuations is BSE500 index as of Octrsquo 14

Combining lsquovaluersquo with lsquoqualityrsquo should help improve returns further

Strategy

Why long term Equities given the inherent volatility are usually touted as a long-term asset class This makes sense at an intuitive level - whilst the Sensex has returned over 15 CAGR returns over the last 25 years there have been intermittent periods of unusually high drawdowns For example in 2007 an investor entering the market near the market peak would have lost over 60 of value in less than twelve months of investing Thus whilst over longer time horizons the odds of profiting from equity investments are very high the same cannot be said of shorter time frames

In his book lsquoMore than you knowrsquo Michael Mauboussin illustrates this concept using simple math in the context of US equities We use that illustration and apply it in the context of Indian equities here

We note that the Sensexrsquos returns over the past 30 years have been 16 on a CAGR basis whilst the standard deviation of returns has been ~29 Now using these values of returns and standard deviation and assuming a normal distribution of returns (a simplifying assumption) the probability of generating positive returns over a one-day time horizon works out to ~512

As the time horizon increases the probability of generating positive returns goes up The probability of generating positive returns goes up to ~70 if the time horizon increases to one year the probability tends towards 100 if the time horizon is increased to 10 years (see Exhibit 16 below)

Exhibit 16 Probability of gains from equity investing in India increase disproportionately with increase in holding horizons

Source Bloomberg Ambit Capital research Note This chart has been inspired by similar work done by Michael Mauboussin in the Western context

In addition to a disproportionately higher probability of profit three other factors work in favour of longer investment horizons at the portfolio level

(a) No churn By holding a portfolio of stocks for over ten years the investor resists the temptation to buysell in the short term With no churn this approach reduces transaction costs which add to the overall portfolio performance over the long term

(b) Power of compounding Holding a stock for long periods allows the power of compounding to play out As a result winning stocks gain disproportionately and start dominating portfolio returns while losing stocks fade away to irrelevance Thus even with modest strike rates investors improve their portfolio returns by holding stocks for the long term

(c) Neutralising the negatives of ldquonoiserdquo Investing over longer time horizons is also an effective way of killing lsquonoisersquo that interferes with the investment process Consider for example how over the long term Lupinrsquos investors have had to withstand short-term disappointments to eventually compound at an impressive 33 CAGR since Janrsquo 04 (see Exhibit 17 below)

1 Hour 1 Day 1 Week 1 Month 1 Year 10 Year 100 Years

The probability of generating positive returns increases disproportionately with increase in holding horizons

No churn power of compounding and neutralising the negatives of lsquonoisersquo are other factors that work in favour of longer investment horizons

Strategy

Exhibit 17 Lupinrsquos stock price has compounded at an impressive 33 CAGR since Janrsquo 04

The chart shown above highlights that over the past 11 years there are several extended time periods when Lupinrsquos share price has not gone anywhere ndash such as from Janrsquo 04 to Marrsquo08 and from Junrsquo10 to Janrsquo12 In spite of remaining flat over these periods Lupin has performed so well in the remaining six years that the 11-year CAGR of the share price is 33 At its simplest this is why the concept of investing for longer time horizons works ndash once you have identified a great franchise and you have the ability to hold on it for a long period time there is no point trying to be too precise about timing your entry or your exit As soon as we try to time that entryexit we run the risk of ldquonoiserdquo rather than fundamentals driving our investment decisions

2500Ja

Lupins share price

30042015 Land-shackled economies The paradox of soil | The Economist

httpwwweconomistcomnode21647622print 110

Land-shackled economies

The paradox of soilLand the centre of the preshyindustrial economy has returned as a constraint ongrowth

Apr 4th 2015 | From the print edition

THE history of economics has been among other

things a story of learning to care less about land

The physiocrats of 18thshycentury France saw it as

the primary guarantor of wealth Adam Smith

included it alongside labour and capital as one of

the three factors of production that combined to

generate output A little later Thomas Malthus

saw its innate scarcity as ensuring eventual

catastrophe in the face of exponential population growth

Instead of succumbing to catastrophe Western countries found ways to work around landrsquos

scarcity some of them ingeniousmdashskyscrapers artificial fertiliser railways suburbsmdashand some

nefariousmdashdispossessing the oppressed and colonised Improved transport allowed land farther

off to do the work that land close at hand had done before whether by producing crops half

way round the world or housing workers out in the suburbs High productivity allowed more

food to be grown on fewer farms

The value of land relative to GDP fell remorselessly (see chart 1) By the second half of the 20th

century land was sufficiently marginalised in richshyworld economies that it scarcely registered in

economics textbooks By the 1970s some seers noting the falling cost and increasing power of

information technology convinced themselves that the textbooks were anticipating the way of

the world land and location would soon cease to matter in real life too

Instead concern over land has come roaring back The issue is not overall scarcity but scarcity

in specific placesmdashthe cities responsible for a disproportionate amount of the worldrsquos output

The high price of land in these places is in part an unavoidable concomitant of success But it is

also the product of distortions that cost the world dear One estimate suggests that since the

1960s such distortions have reduced Americarsquos GDP by more than 13

Mayfair

Landrsquos new relevance is rooted in two main developments The first ironically enough is related

to the revolution in computers and communications that was beginning to become evident in

the 1970s In some ways this revolution has brought about the ldquodeath of distancerdquo foreseen by

Frances Cairncross (a former journalist at The Economist) Supply chains leap borders and

oceans calls to customer services can be answered a continent away But if distance has died

location has not

In the middle of the 20th century many big previously vibrant cities in the rich world were

shrinking In the 1980s in some of them that turned around Edward Glaeser of Harvard

University and Giacomo Ponzetto of CREI a research centre in Barcelona reckon that this was

because information technology made work in some knowledgeshyintensive industries far more

lucrative Financial traders could manage more money across more investors software firms

could sell their products cheaply and easily across a global market As the return to knowledgeshy

intensive activities exploded so did the economic fortunes of ideashyproducing places

There is support for this idea in research done by Thor Berger of Lund University and Carl

Benedikt Frey of the University of Oxford Before the 1980s there was no statistical link between

the skillshylevel of a cityrsquos workforce and its tendency to create new kinds of work From the 1980s

on by contrast new job categories appeared with much greater regularity in places with highly

skilled workers than in those that lacked them What is more Mr Glaeser and his colleague

Matthew Resseger find a close relationship between the population of a metropolitan area and

the productivity of workers within that area It seems that workers accumulate knowledge faster

in cities with lots of idea industries

Top cities became hotbeds of innovative activity against which other places could not easily

compete The people clustered together boosted each othersrsquo employment opportunities and

potential income From Bangalore to Austin Milan to Paris land became a scarce and precious

resource as a result the economic potential of a hectare of a rural Kentucky county is

dramatically lower than that of a hectare in Silicon Valleyrsquos Santa Clara county And there is

only so much of Santa Clara to go around

Yet more Santa Clara could be built were it not for the second and more distressing factor

behind landrsquos return the growing constraint imposed by landshyuse regulation The Santa Clara

town of Mountain View for instance is home to some of the worldrsquos leading technology firms

Yet nearly half of the cityrsquos homes are singleshyfamily buildings the population density is just over

2300 per square kilometre three times lower than in noneshytooshydensely populated San

Francisco

The spread of landshyuse regulation is not hard to understand The clustering that adds to local

economic vibrancy has costs too as the unregulated urban booms of the 19th century made

clear Crowded slums were fertile soil for crime and epidemics filthy air and water afflicted rich

and poor alike Officials began imposing new rules on those building in cities and later on

those extending them limiting heights and building designs imposing maximum densities and

minimum parking requirements setting aside ldquogreen beltsrdquo on which development was

prohibited Such regulations have steadily expanded in scope and spread to cities around the

As metropolitan economies recovered from their midshy20thshycentury slump populations began

growing again The numbers of people living in the central parts of London and New York have

never been higher And as demand for quality housing increased the unintended consequences

of the thicket of building regulation that had grown up in most cities became apparent

David Ricardo an eminent earlyshy19thshycentury economist who was among other things a friend

of Malthusrsquos would have recognised the issue Back when land was at the centre of the

discipline his observations led him to the idea of a rent an unearned windfall accruing to the

owner of a scarce resource

Strained food supply would raise food prices he reasoned which would encourage landowners

to bring ever more land under cultivation But higher food prices benefited all landowners A

lord sitting on highly productive agricultural land suddenly found his profits swelling not as a

result of innovation on his part but because humanity needed more of something he happened

to own This is what is happening in the worldrsquos cities today

According to data gathered by Robert Shiller of Yale University the inflationshyadjusted cost of

building new housing in America is roughly the same now as it was in the 1980s The inflationshy

adjusted cost of buying a new home by contrast has risen by 30 over the same period (during

the property bubble of the 2000s house prices climbed a great deal further before falling back)

Individual cities have experienced even larger increases From 1993 to 2013 prices in Boston and

San Francisco rose by 60 in real terms

American cities are not exceptional Economic change led to the rejuvenation of cities around

the world stress on stagnant housing stocks and soaring housing costs In many developed

economies the value of housing is an ever greater store of wealth (see chart 2)

Belleville to Rue de la Paix

Economists studying the issue generally reckon that rising housing costs are a product of the

rising cost of land David Albouy of the University of Illinois and Gabriel Ehrlich of Americarsquos

Congressional Budget Office reckon that in America land accounts for a third of total housing

costs and close to half in some metropolitan areas A high share of land in housing costs results

in the creation of large rents for landowners

If regulatory limits on building heights and density were relaxed fewer plots of land would be

needed to satisfy a given level of demand That would reduce the rents collected by landowners

since any uptick in demand could quickly be met by new development Just as soaring

agricultural productivity led to a decline in the relative economic power of rural landowners in

the 19th and 20th centuries the relaxation of strict limits on development would lead to a

decline in property wealth relative to the economy as a whole More of the gains of economic

activity would flow to workers and investors

Instead building regulations keep urbanshyland productivity low and the costs are staggering A

2005 study by Mr Glaeser and Raven Saks of Americarsquos Federal Reserve and Joseph Gyourko

of the

University of Pennsylvania attempted to derive the share of property costs attributable to

regulatory limits on supply In 1998 this ldquoshadow taxrdquo as they call it was about 20 in

Washington DC and Boston and about 50 in San Francisco and Manhattan Matters have

almost certainly got worse since then

Similar work by Paul Cheshire and Christian Hilber of the London School of Economics

estimated that in the early 2000s this regulatory shadow tax was roughly 300 in Milan and

Paris 450 in the City of London and 800 in its West End The lionrsquos share of the value of

commercial real estate in Europersquos most economically important cities is thus attributable to

rules that make building difficult

One may find it hard to sympathise with Mayfair hedge funds facing high rents But the net

effect of these costs is felt more by the poor than by the rich Take American homeowners The

fact that 60 of households own property might seem to suggest that rising house prices and

inflated land values were good for a large swathe of the middle class Yet Edward Wolff of New

York University notes that the middle class enjoyed much less of a boost to wealth because of an

accompanying rise in mortgage debt (see chart 3) Meanwhile poorer Americans who rent their

homes experienced soaring housing prices as a large and sustained increase in their cost of

living

Housing wealth has played a critical role in rising inequality to which Thomas Piketty an

economist at the Paris School of Economics drew attention in his bestselling book ldquoCapital in

the TwentyshyFirst Centuryrdquo In a recent paper Matthew Rognlie a doctoral student at MIT

noted that the rising share of national income flowing to owners of capital rather than workers

is largely attributable to increased payments to owners of housing Capital income from housing

accounted for just 3 of the total in 1950 but is responsible for about 10 today

Land rents are also captured by landowners in many emerging markets According to CBRE a

property company Beijing and New Delhi are among the worldrsquos ten most expensive office

markets while Kuala Lumpur and Jakarta are among those with the fastest price increases

Extremely fast growing areas are often crucial to developing economies which means poorly

regulated property markets can do a lot of harm In Indiarsquos big cities onerous permitting

procedures tight rent control and strict limits on how land may be used have heavily distorted

patterns of growth and the allocation of its benefits

Growth in the rents available to property owners fuels corruption and wastes resources

Landowners work to strengthen development restrictions while politicians cash in on their

ability through selective development approval to grant fortunate supplicants a windfall In

economies where political corruption is already a problem the renaissance of land may be

especially corrosive In October 2014 the Times of India reported that the bribes required to

clear the various stages of the planningshypermission process in central Mumbai could add up to

as much as half of basic building costs

Residential property value per square mile$m 2009-13

Price persquare mile

Totalvalue

Average price Value perperson

Owneroccupancy

Housingdensity

Populationdensity

Source Census Bureau The Economist Double-clicktap any county to zoom

National State County072 New York (7) 46 New York (1) 16548

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

The ugliest effect of the return of land though may be the brake it applies to the economy as a

whole One of the main ways economies increase worker productivity and thus grow richer is

through the reallocation of people and resources away from lowshyproductivity segments to more

efficient ones In business this means that bad firms go bust and good ones grow to great size

Something similar should hold for cities Where workers can be put to use at high levels of

productivity labour scarcity will lead to fast growing pay packets Those pay packets will attract

workers from other cities When they migrate and find new highshypaying work the whole

economy benefits

Mediterranean Avenue to Boardwalk

But that process is now breaking down in many economies For workers to move to the high

wages on offer in San Francisco they must win an auction for a home that provides access to

the local labour market The bidding in that auction pushes up housing costs until there are just

enough workers interested in moving in to fill the available housing space Salaries that should

be sending comeshyhither signals are ending up with rentiers instead and the unfairness can

trigger protest as it has in San Francisco Many workers will take lowershypaying jobs elsewhere

because the income left over after paying for cheaper housing is more attractive Labour ends

up allocating itself toward lowshyproductivity markets and the whole economy suffers

ChangshyTai Hsieh of the University of Chicago Booth School of Business and Enrico Moretti of

the University of California Berkeley have made a tentative stab at calculating the size of such

effects But for the tight limits on construction in Californiarsquos Bay Area they reckon

employment there would be about five times larger than it is In work that has yet to be

published they tot up similar distortions across the whole economy from 1964 on and find that

American GDP in 2009 was as much as 135 lower than it otherwise could have been At

current levels of output that is a cost of more than $2 trillion a year or nearly $10000 per

person

The good news is that the worldrsquos urbanshyland scarcity is largely an artificial problem The bad

news is that that does not make it a soluble one Redressing strict land regulation is among the

most politically fraught of policy issues It is in many ways like other toxic issues such as trade

or immigration The society on the receiving end of new imports or population inflows benefits

as a whole but those put out of business by competition or dismayed by cultural change feel a

disproportionate level of damage and organise in opposition And in the case of land values this

opposition will be rich

There are ways to address this with policy Governments could aim specific assistance at those

harmed by dense development as they have to those affected by liberalised trade Disbursing

some of the tax revenue earned as a result of new development to landowners within a small

area around that development to compensate for shortshyterm hardship would reduce opposition

to new building

Or they could heed the advice of Henry George an American follower of Ricardo who in the

1880s made the case for a landshyvalue tax It has many theoretical virtues Most taxes dampen

distort or displace economic activity by changing incentives on the margins But a land tax

cannot reduce the supply of land and it would stimulate economic activity by penalising those

whose land is unproductive And your tax base is always right theremdasha city lot cannot be

whisked off to Luxembourg

The mayor of New York City Bill de Blasio hopes that taxing vacant lots by value will help deal

with urban blight in the Bronx and elsewhere But there are practical problems with a land tax

mdashperhaps the largest of which is that by its very

nature it hits the wellshyconnected rich hardest

Even fiscally purist Estonia which adopted a land

tax in 1993 has complicated it with multiple

bands including an exemption for homeowners

Those already blessed with property may also

object to the other obvious approach to the

problem faster and highershycapacity transport

links allowing the benefits to be spread farther

afield Some ways of improving transportmdashsuch

as congestion charges on trafficmdashmay be cheap

but especially in big cities new infrastructure is a

slow and costly undertaking as veterans of

Bostonrsquos tunnelshyenhancing ldquobig digrdquo can attest A

new underground railway line in London

Crossrail is currently Europersquos most expensive

infrastructure project

In the absence of jet packs all round what else

might technology offer In time perhaps it could

do to location what it did to brute distance

abolishing the problem Virtual reality and social

networking might combine to provide the benefits

of dense populations without the propinquity Unlikely yesmdashbut perhaps no more so than a

skyscraper or a subway train to David Ricardo

From the print edition Briefing

23042015 Indiarsquos Central Bank Chief Looks for More Accommodation shy Real Time Economics shy WSJ

httpblogswsjcomeconomics20150420indiasshycentralshybankshychiefshylooksshyforshymoreshyaccommodationtabprintmg=blogsshywsjampurl=http253A252F252Fblhellip 14

April 20 2015 411 PM ET

ByJon Hilsenrath

Raghuram Rajan governor of the Reserve Bank of IndiaKuni TakahashiBloomberg News

Reserve Bank of India Governor Raghuram Rajan is keeping his options open for additional reductionsin benchmark interest rates

The central bank has cut rates twice this year and could cut rates further if it sees more signs that inflationis easing Mr Rajan said in an interview with The Wall Street Journal on the sidelines of the InternationalMonetary Fundrsquos spring meetings

ldquoWersquore going to look for itrdquo Mr Rajan said ldquoWersquore going to look to see the course of disinflation continuerdquo

The interview touched on a range of issuesndashincluding puzzles about slow global economic growth and theprospects for interestshyrate increases by the US Federal ReserveA lightly edited transcript of key excerpts follow

WSJ What is your read on how the global economy is performing right now

Indiarsquos Central Bank Chief Looks for MoreAccommodation

23042015 Indiarsquos Central Bank Chief Looks for More Accommodation - Real Time Economics - WSJ

httpblogswsjcomeconomics20150420indias-central-bank-chief-looks-for-more-accommodationtabprintmg=blogs-wsjampurl=http253A252F252Fblhellip 24

RAJAN It is weaker than anybody thought would be the case seven years after the crisis I am in thecamp that says this reflects weakness that was there before the crisis and was masked by a fair amountof borrowing That borrowing may have weakened us even more but there is some fundamentalweakness Whether it is low productivity or aging I will leave to other people to sort out

We donrsquot fully understand the ramifications of aging as yet We are still debating whether Japan post-1992did fine given its aging population and shrinking labor force or whether it was really very weak growthSome people say it was fine Per capita growth or growth per person employed comes out looking prettygood compared to other industrial economies But when you look at overall growth it looks pathetic Whatexactly was going on

Similarly we donrsquot understand the true cost of minor deflation Was that cause or effect We are veryworried about deflation We made it a real bogeyman In the Japanese situation yes it was a long period ofsustained minor deflation but it never got to be accelerating deflation It isnrsquot clear to me that we got into asituation where people postponed purchases because they thought they would be cheaper next year Sowhat are the true costs from deflation and are they so high that we have to pull out all of the stops to avoidit at any cost

WSJ One of the arguments is that it raises real interest rates

RAJAN It does but we have also found that we can have negative interest rates Also look at investmentIs it high real interest rates that are keeping people from investing or is it something else You couldpostulate some real interest rate at which people would invest If that real interest rate is negative threepercent or negative four percentndashif people need to be paid money to investndashisnrsquot that telling you somethingelse is wrong in the economy People want to just dump assets into the ground because something else isoff I donrsquot know if the real problem keeping investment low is excessively high real interest rates I donrsquotthink we fully understand why investment is so weakTwo factors make growth an imperative for industrial countries today One is that entitlements are loomingThey are coming much closer as populations age That is augmented by the debt that has been taken onThese two have to be paid down which means you need growth to pay them down The other is thegrowing effects of inequality You have to worry about the degradation of the middle-class job as well asthe fact that many people are moving down to the lower middle class That also puts pressure on policymakers to do something Both of these are coming together at the same time wersquore trying to pull out all ofthe stops to get growth going It just doesnrsquot seem to be coming in a sustainable way so we get more andmore adventurous

WSJ How would you explain the slowdown wersquove seen so far this year

RAJAN We just donrsquot seem to be getting escape velocity This virtuous cyclendashwhere everybody believesthat everything is going to be all right so they start investing then investment creates jobs jobs createdemand and demand creates investmentndash that virtuous cycle is just not happening Every time it seemslike it is happening you have one more quarter of terrible growth

WSJ Are you talking globally or about the US

RAJAN Irsquom talking about the US because it is now the engine to some extent of industrial-countrygrowth I donrsquot know why we are not getting that self-sustaining ramp up

WSJ This International Monetary Fundrsquos World Economic Outlook points to the slowdown in emerging-market potential growth It actually sees a bigger slowdown in emerging markets than the developed worldHow do these stagnation stories affect you running an emerging-market central bank

RAJAN Emerging markets have become dependent on industrial-country demand Strong growth inindustrial country demand pulled demand up for emerging-market economies We didnrsquot have to createdemand ourselves Creating demand is a very fraught process It is very easy to lapse from modestdemand creation to credit booms to runaway capital spending You need good macro institutions to do thatcarefully Emerging markets got into trouble in the 1990s because they didnrsquot do that well So weoutsourced demand creation to the industrial countries Unfortunately the demand creation there wasunsustainable Now it got pushed back to the emerging markets And again we had the unsustainabledemand creation that happened in emerging markets whether it is the enormous debt-fueled investmentthat took place in some countries like China or the consumption booms that took place in some otheremerging markets We had corporate borrowing in places like India Now a number of emerging marketshave to slow down because they got too much

WSJ When we sat down here a year or so ago the problem you were trying to solve was too muchinflation now you are running below target

RAJAN It is a corollary of very weak demand There is also a greater globalization of labor markets Youcanrsquot on your own start demanding high wages because there is competition elsewhere and that tends toput a lid on wage increases It makes it easier to control inflation when wage growth doesnrsquot get out ofcontrol very easily The global labor market the low capacity utilization around the world is essentiallykeeping a lid on inflation When you couple that with the commodity-price declines especially oil wherethere are some supply-side effects also we are in a very very benign inflationary environment Some of itwould classify as bad deflation in the old sense excessively weak demand Some of it would classify asgood deflation new sources of supply and more-efficient sources of supply which bring prices downAs far as India goes yes our problem was very high inflation some of it driven by domestic factors suchas an escalating price of food feeding from food into second round effects in services It wasnrsquot just foodEducation costs construction costs were all going up Now I think that has slowed down considerablyOur wholesale price inflation index is negative 2 That essentially reflects global inflation Our domesticprice inflation consumer price inflation is 52 Wersquore doing reasonably well on the domestic inflation fronthelped by global disinflationary pressures Also we have managed to get more control of domestic pricesI am hopeful that there is a steady process of further disinflation Our intent is over the next two and a halfyears to reach the midpoint of our target which is 4 We want to get under 6 by January 2016 and thenwersquoll go toward 4 by January 2018

WSJ The Greenspan era was marked by the idea of opportunistic disinflation Is this an opportunity foryou to get to 4 sooner than planned

RAJAN We set a two-year time frame because we believed that gave us enough time to get there withouttoo much of a growth sacrifice balancing growth and disinflation If there was some global event thathelped me reach that faster would I say lsquoNo no I donrsquot want it Take it backrsquo Two years is about the timethat we can do it reasonably If opportunity strikes would I refuse it No

WSJ Is the period we are in right now an opportunity or a threat to the tradeoff

RAJAN I see the combination of circumstances including the actions the government has taken to

copyright law For non-personal use or to order multiple copies please contact Dow Jones Reprints at 1-800-843-0008 or visitwwwdjreprintscom

moderate food prices the sharp reduction in oil prices around the world as beneficial and supportingfactors that make it easier for us to obtain our inflation objectives Did I know that all of this will be therewhen we embarked on this No Therefore it has made it easier for us to be accommodative today

WSJ You cut rates twice this year Is there room for more accommodation

RAJAN Wersquove said wersquore going to look for it Wersquove said wersquore going to look to see the course ofdisinflation continue We also wanted the banks to start transmitting some of the rate cuts that wersquove doneWe continue examining the process of fiscal consolidation And finally international developments Wersquorewatching the data like everybody else We have said we have moved toward accommodation but we needto be convinced that a number of factors are coming together to know there is room for moreaccommodation

WSJ Does this latest print on inflation move you in that direction

RAJAN I have resisted commenting on every print that comes in Clearly it has surprised the marketpositively

WSJ Wersquore talking about slow growth Wersquore talking about global disinflation Wersquore talking about how hardit is to reach escape velocity Can the rest of the world afford for the Fed to raise rates in this environment

RAJAN Can we afford for the Fed not to The worry is that the longer we stay in this environment thedeeper are the distortions that wersquoll have to undo eventually At some point yoursquove got to say lsquoOK enoughWersquove got to get outrsquo The longer we stay here the more the distortions pick up There will be no perfecttime

Voice andAccountability

Politicalstability

Governmenteffectiveness

Regulatoryquality

Rule of law Control ofcorruption

Percentile

World governance indicatorIndia

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

Change in ranking (2004-13)

Government effectiveness

0 5 10 15

Poor public healthInsufficient capacity to innovate

Tax regulationsInflation

Crime and theftPoor work ethic in national labor force

Policy instabilityInadequately educated workforce

Government instabilitycoupsRestrictive labor regulations

Inefficient government bureaucracyCorruption

Inadequate supply of infrastructureForeign currency regulations

Tax ratesAccess to financing

The most problematic factors for doing business in India

Percent of responses

1960 1970 1980 1990 2000

YearsYears

Average age at entry for IAS

Indian Administrative Service years denote starting of respective decades

India Malaysia HK US China UK Singapore

YearsYears

Age of the head of civil service

For US and China avg age of senior bureaucrats are shown

04 05 06 07 08 09 10 11 12 13 14

INR billionINR billion

Stalled Projects

Infrastructure

Industrial

Governance Indicator Components Source

Government Effectiveness Quality of bureaucracy institutional effectiveness EIU IPD WCY WMO GWPExcessive bureaucracy red tape

Public school basic health services drinking water and sanitation electricity grid transport infrastructure maintenance and waste disposalGovernment economic policies do not adapt quickly to changes in the economyIndependence of public service from political interferenceGovernment decisions are not effectively implementedBureaucracy hinders business activityPolicy direction is not consistentBureaucracy quick decision makingclear policy for foreign investors

EIU Economist Intelligence Unit WCY Institute for management amp development World Competitiveness Yearbook IPD Institutional Profiles Database WMO Global Insight Business Conditions and Risk Indicators GWP Gallup World Poll

Dependent variable

Model Baseline With low income countries

Government effectiveness scores 028 (878)

040(520)

Estimation method Country Fixed Effects Country Fixed EffectsSample Period 1998-13 1998-13Observations 140 112R-squared 098 094t-statistics in parenthesis significant at 1 level

Real GDP per capita annual growth

Note CVC Central Vigilance Commission IO Inquiry Officer AGS Accused Government Servant PO Presenting Officer DOPT Department of Personnel amp Training DA Administrative department UPSC Union Public Service Commission

Complaint PreliminaryInvestigation

Whether minormajor

penaltyProceedings

Consultation with CVC

Whether minormajor

penaltyProceedings

Vigilance officer to draw up charges

Delivery of articles of charges statement of imputation list of

document amp witnesses

AGS to submit statement of

defence

Acceptance or rejection of

charges by AGSConsultation with

Consultation with DOPT DA may review or

modify chargesAppointment of

inquiring authorityAppointment of

presenting officerForwarding

documents to inquiry officer

Inquiry of officer fixes day for preliminary

hearing

Accused govt servant informs

about the assisting govt servant

charges by AGS

On first hearing the IO to ask PO to

produce evidence and adjourn the case

PO to allow inspection of

documents by

Issue of notices to witnesses

PO to lead evidence Examination of

witnesses on behalf of DA Cross examine by AGS Re-examine by PO Examine by IO

Additionalevidence on behalf of DA

Statement of defence by AGS

evidence on behalf by AGS

Examination of AGS

Final hearing or written briefs

Submission of report of IO

DA to deliver copy of report to AGS and seek

comments

Consultationwith UPSC

Consultationwith CVC

Final Order

Real GDP Growth (year-over-year)

GS Consensus GS ConsensusAsia ex-Japan 62 61 61 63 63

China 77 74 73 72 71India 47 56 54 65 62South Korea 30 35 35 38 37Hong Kong 29 21 23 29 30Taiwan 21 37 36 39 36ASEAN 50 45 44 52 52

Singapore 38 35 32 42 38Malaysia 47 61 57 52 52Thailand 29 13 13 45 43Indonesia 58 51 52 52 56Philippines 72 61 63 65 63

USA 22 22 22 30 31Euro area -04 07 08 10 12Japan 15 09 11 11 13GS estimates for annualized growth rate of potential output from 2013-16

Fiscal year basis 2013 is India FY14 (Q2 2013-Q1 2014)Source Consensus Economics Goldman Sachs Global Investment Research

2013 2014 2015 Potential Growth

77603840

60602311

Consumer Prices (year-over-year)

USA 15 17 18 14 18Euro area 13 05 05 08 10Japan 04 28 28 17 18Fiscal year basis 2013 is India FY14 (Q2 2013-Q1 2014) 80 as the inflation target in January 2015Core inflation target

ECB aims to maintain inflation rates below but close to 2 over the medium term

Source Consensus Economics Goldman Sachs Global Investment Research

2013 2014

25-35-

30-502020

2015 Inflation TargetRange

-05-30

Policy Interest Rates (percent)CurrentNov 6 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Asia ex-JapanChina 306 320 330 343 310 320 330 350 350India 800 800 800 800 800 800 800 800 800South Korea 200 250 250 225 200 200 200 225 250Hong Kong - - - - - - - - -Taiwan 19 19 19 19 19 19 20 21 21ASEAN

Singapore - - - - - - - - -Malaysia 325 300 300 325 325 350 350 350 350Thailand 200 200 200 200 200 200 200 225 275Indonesia 750 750 750 750 775 800 800 800 800Philippines 400 350 350 400 400 400 400 400 400

USA 007 008 010 009 013 013 013 038 063Euro area 005 025 015 005 005 005 005 005 005Japan 006 010 010 010 010 010 010 010 010Policy interest rates China 7-day repo India repo rate Korea 7-day repo Malays ia overnight policy rate

Thailand 1-day repo Philippines repo rate Indonesia 1-m onth SBI rate Taiwan redis count rate USA Fed funds effective rate

Euro Area Main refinancing operations fixed rate Japan Overnight call rate

Source Goldman Sachs Global Inves tment Research

2014F 2015F

Exchange Rates (local currency units per USD)

Current 3-Month Horizon 6-Month Horizon 12-Month Horizon

Nov 6 Forward Forecast Forward Forecast Forward ForecastAsia ex-JapanChina 615 616 616 619 615 624 615India 6133 6219 6100 6310 6200 6498 6300South Korea 1078 1082 1100 1085 1130 1088 1140Hong Kong 78 78 78 78 78 78 78Taiwan 305 305 305 304 305 303 310ASEAN

Singapore 129 129 126 129 127 129 127Malaysia 334 336 327 338 330 342 335Thailand 327 328 325 330 330 333 340Indonesia 12083 12290 12400 12515 12700 12925 13000Philippines 450 451 455 452 460 454 465

Euro area 126 126 123 126 120 126 115Japan 1136 1135 1160 1133 1180 1130 1200 USD per EuroSource Goldman Sachs Global Investment Research

India Economic Watch

When Im 6353 Will RBI stillhold me

GEM Economics | Asia | India26 April 2015

+91 22 6632 8653India EconomistDSP Merrill Lynch (India)indranilsenguptabamlcom +91 22 6632 8682India EconomistDSP Merrill Lynch (India)aguptabamlcomMerrill Lynch (Singapore)

Bottom line Token resistance now US$15bn defense atRs65USDHow will the RBI react clients ask after the INR crossed Rs63USD levels We continue to expect it to offer token resistance now given USD strength and sell US$15bn to defend Rs65USD The RBI should continue to buy at Rs60-62USD After all the INR always seasonally weakens in April-September our Asia FX strategist Adarsh Sinha sees Rs64USD by September Second Governor Rajan will understandably want to hoard precious FX reserves to fight any contagion during our expected September Fed hike Finally the INR remains 13 over valued on 36-country REER terms Looking ahead we see 3 swing factors First next weeks FOMC meeting will naturally shape the RBI immediate FX policy Second quarterly earnings will drive FII equity flows Finally a lull in FX repayments till September should support INR

RBI to hold Rs60-65USD How will the RBI react clients ask after the INR crossed Rs63USD levels We continue to expect it to offer token resistance now given USD strength The RBI should continue to pursue a 3-step FX policy

Rs60-62USD RBI will continue to buy FX

Rs63-64USD It will offer token defense selling say US$500mn-US$1bn as it did in December-January and now

Rs65USD We see full-scale FX intervention of say US$15bn

1 INR weakens seasonally in April-September We continue to highlight that INR always weakens seasonally in April-September (Chart 1) Trade seasonality turns in favor of imports and against exports as the summer and the monsoon slackens industrial production In fact our Asia FX strategist Adarsh Sinha sees Rs64USD by September Do read our last FX report here

2 RBI to recoup FX to fight competitive monetary easingWe expect Governor Rajan to hoard precious FX reserves to fight any contagion during our expected September Fed hike Needless to say we fully share his concerns about excessive global liquidity from competitive monetary easing Our BoP estimates show that the RBI will be able to buy US625bn in FY16 to take the import cover to over 10-months (Table 1 and Chart 2)

3 INR 13 over valued outperformed peersWe continue to highlight that the INR remains 132 over valued in 36-country REER terms (Chart 3) It has also outperformed EM peers since December 2013 despite having depreciated around 2 over the last week (Chart 4) There is as such no great imperative for very forceful RBI action when Delhi is worried about a strong INR

I nd i a Econo mic Wa tch

26 A pr i l 2 015

We continue to advise investors to see the 36-country REER as a measure of competitiveness rather than the 6-country REER that over-values INRrsquos strength far more at 252 in REER terms The 6-country REER really measures cross-currency pressures as it has been created out of hard currencies rather than out of currencies of Indias trading partners For details see our report here

1 Fed Dovish but no clear guidance The April FOMC statement will naturally shape the immediate RBIs FX policy Our US economists however do not expect any clear guidance against a June rate hike or in favor of their September rate hike call The April FOMC statement should note the disappointing recent data which should sharply reduce the odds of June liftoff However we do not expect the statement to explicitly rule out a June hike as the FOMC wants to retain policy flexibility If market participants are looking for a clear sign that the Fed will not hike in June they are likely to be disappointed Do read our US economists here

2 Weak earnings FII G-sec limit hike swing factor Weak quarterly earnings will likely impact FII equity flows especially with the rebound in Chinese equities Our equity strategists expect BSE Sensex March quarter earnings at a mere 1 While the profits recession is global the BSE Sensex is no longer cheap A saving grace is that we continue to expect a hike of US$5bn in the FII G-sec limit soon Do read our equity strategists here

3 Lull in FX repayments till September A lull in FX repayments till September should support INR (Chart 5) In any case we continue to expect Indian banks and corporates to roll over their FX liabilities

26 Ap r i l 201 5

Source BofAML Global Research Estimates Bloomberg

Current Account -324 -786 -1008 -839 -265 -155 of GDP -17 -17 -21 -18 -13 -07Trade balance -1476 -346 -386 -392 -1395 -1355- Exports 3186 817 853 790 3291 3546- Imports 4662 1164 1238 1182 4686 4901ow Oil imports 1668 408 419 342 1363 1015ow Gold imports 287 70 76 111 325 432

Invisibles 1152 268 285 309 113 120ow private transfers 655 164 163 164 674 708ow income from reserve assets 35 07 10 13 50 50

Capital Account 488 199 187 234 925 880Foreign investment 264 206 180 136 650 550- FDI 216 82 82 74 30 30- FII+ 48 124 98 63 35 25

Banking capital (ex RBI fwds FY15-16) 254 -01 -04 105 15 10- NRI deposits 389 24 41 36 14 10

External assistance 10 00 07 03 25 5ECBs 118 17 17 18 8 12Short term credit -50 02 -16 -14 2 6Other Capital -108 -25 03 -14 00 00Errors and Omissions -09 -08 -17 -18 00 00Overall balance 155 112 69 132 660 725MemoRBIs forex intervention (incl RBI fwds FY15-16) 110 106 52 116 585 625Import Cover (in months) 78 93 104Source RBI BofA Merrill Lynch Global Research estimates

INRUSD avg seasonal factors (FY10-FY15)

26 A pr i l 2 015

Source BofAML Global Research Estimates RBI

Source RBI BofA Merrill Lynch Global Research estimates

Note As on 25 April 2015 Source BofA-ML Global Research Estimates Bloomberg

Import cover (months) INRUSD (RHS)

36 country REER (Trade Wt) 6 country REER (Trade wt)

Brazil Russia India China Turkey Indonesia Mexico

since 22 May13 since 18 Dec13 since 1 Aug14

26 Ap r i l 201 5

Source BofA-ML Global Research Estimates Bloomberg

Special DisclosuresIn accordance with the SEBI (Foreign Portfolio Investors) Regulations 2014 andwith guidelines issued by the Securities and Exchange Board of India (SEBI) foreign investors (individuals as well as institutional) that wish to transact the common stock of Indian companies must have applied to and have been approved as per SEBI (Foreign Portfolio Investors) Regulations 2014 Each investor who proposes to transacts common stock of Indian companies will be required to obtain Foreign Portfolio Investor (FPI) registration as per SEBI (Foreign Portfolio Investors) Regulations 2014 Certain other entities are also entitled to transact common stock of Indian companies under the Indian laws relating to investment by foreigners BofA Merrill Lynch reserves the right to refuse to provide a copy of research on common stock of Indian companies to a person not resident in India American Depositary Receipts (ADR) representing such common stock are not subject to these Indian law restrictions and may be transacted by investors in accordance with the applicable laws of the relevant jurisdiction Global Depository Receipts (GDR) and the Global Depository Shares (GDS) of Indian companies Indian limited liability corporations have not been registered under the US Securities Act of 1933 as amended and may only be transacted by persons in the United States who are Qualified Institutional Buyers (QIBs) within the meaning of Rule 144A under the Securities Act Accordingly no copy of any research report on Indian companies GDRs or GDSs will be made available to persons who are not QIBs

DSP Merrill Lynch Limited (DSP Merrill Lynch)DSP Merrill Lynch provides the following services in India Equity Sales amp Trading Futures amp Options Electronic Trading Equity Capital Markets Debt Capital Markets MampA and Global Wealth Management SEBI Regn Nos StockBroking INBINF 011348134 INBINF 231348138 Merchant Banker

- 05 10

15 20 25 30 35 40

Bond repayment Loan Repayment Total FX repayments

The Economist

After Nepalrsquos earthquakeAll latest updates

To the rescueA 78-magnitude earthquake brings tragedy and reveals political shortcomings

Apr 29th 2015 | DELHI AND KATHMANDU | Asia

A CLOUD of brown dust filled with rock doves

rose over Kathmandu the Nepali capital when

the earthquake struck on April 25th The

ground shook so violently as the Indian

tectonic plate lurched three metres (10 feet)

northward that people struggled to stand The

earthquake rattled windows in Delhi the

Indian capital 1000 kilometres (625

miles) away

Older parts of Kathmandu are now rubble A 62-metre tower put up in the 19th century

Dharahara collapsed More buildings fell in Durbar square a UNESCO world-heritage site

that is home to temples that are hundreds of years old Both sites had been thick with locals

as well as foreign visitors Many were trapped and died At least one newish hotel also folded

killing dozens But for the most part the cityrsquos concrete-and-glass structures stayed up

despite notoriously poor enforcement of building codes Some credit is due to public

campaigns by non-governmental groups and the UN They have trained builders to

strengthen the joints of concrete beams Hundreds of schools in Kathmandu have been

retrofitted in recent years Thanks to that expertsrsquo worst fears of a big earthquake

flattening three-fifths of the capital and killing 100000 were not fulfilled

Thanks too to luck the main earthquake (there were aftershocks) came at noon on a

Saturday when schools and offices were closed and many people were up and about

outside Even so the suffering is horrendous By mid-week over 5000 were confirmed dead

The prime minister Sushil Koirala predicts that the toll could reach 10000 Most victims

are in the Kathmandu valley which has seen rapid and haphazard urban growth over the

past couple of decades partly because a civil war that ended in 2006 pushed villagers

towards the capital The valleyrsquos buildings are especially vulnerable since they rest on

sediment layers that are prone to liquefaction Rebuilding the stricken areas could cost

$10 billionmdasha huge bill for one of Asiarsquos poorest countries

Three days after the quake the roads from Kathmandu were thronged with people taking

food and tents to nearby villages In Kavrepalanchok district an hourrsquos drive from the

capital villagers camped in fields under plastic sheets They complained of the stench from

human corpses and dead livestock They badly needed water food and medicine

Two parents digging in the rubble for the body of their 16-month-old daughter said

local police would not help

Next door in Sindhupalchok district every

mud-and-stone house was cracked and many

had collapsed outright The government

guesses that 530000 houses are damaged in

all and over 70000 destroyed Almost no one

has insurance The UN says 8m people in a

population of nearly 30m are affected in some

way The epicentre was 80km north-west

of the capital in a steep and mountainous area Landslides reportedly swept entire villages

off hillside Aerial footage shows houses that have collapsed into circles of dust Unseasonal

rain and cold and continuing aftershocks including one with a magnitude of 69 have left

survivors exposed

On Mount Everest east of Kathmandu tremors set off an avalanche that crushed at least 18

climbers and Sherpas It has been a bad time for Nepali tourism In October freak

snowstorms killed 43 on a lower-altitude trail And a year ago an avalanche on Everest killed

16 Nothing puts off the most determined climbers but a tourism industry that is central to

the livelihoods of many looks troubled

irected largely at the neighbour In a radio address heard in both countries Indiarsquos prime

minister Narendra Modi vowed to ldquowipe the tears of every Nepalirdquo adding that Nepalrsquos pain

was also Indiarsquos Millions of Nepali migrants live and work in India sending remittances

home These will now be badly needed

Mr Modi wants to be seen leading and appears to be guiding the relief effort better than

Nepalrsquos own leaders Within hours of the first jolts the Indian army began delivering aid

There is a geopolitical dimension to the help A Modi adviser talks of an Indian strategy of

becoming ldquomore confident abroadrdquo That starts with winning influence in the region Mr

Modi has twice visited Nepal since he came to office a year ago after a gap of 17 years during

which no Indian prime minister deigned to go He promotes Indian investment in Nepali

hydropower And Nepal is a main beneficiary of Indiarsquos trebling of aid over the past

three years to 94 billion rupees ($15 billion) China presumably features in Mr Modirsquos

calculations It influence has often appeared to be in the ascendant in Nepal which India

traditionally considers to be its own back yard

Several countries and UN agencies quickly promised financial and other help So many

donors rushed search-and-rescue teams field hospitals blankets tents and medical

equipment that the main airport in Kathmandu grew overwhelmed Within a day of the

earthquake China delivered a military rescue team 13 tonnes of aid and promised over $3m

in immediate help It also played down talk of rivalry as a foreign ministry official later

spoke of a wish to coordinate positively with India in our assistance efforts Pakistan sent

tents and a military hospital and Israel provided 95 tonnes of medical and other assistance

As for Nepalrsquos own government it faces huge challenges Rescue and immediate relief

operations are now making way for more sustained help for survivors Distributing materials

for proper shelter and ensuring good sanitation are urgent priorities before the monsoon

rains arrive in a couple of months The sowing season also starts soon so distributing seeds

and farm supplies is pressing

Jamie McGoldrick who leads the UN in Nepal worries that it is the most rural andremote

areas those where the poorestlowest-caste Nepalis live that are at risk ofneglect Though

the needs of the country sidersquos poor are greatest the lionrsquos share of foreign attention and aid

goes to Kathmandu home to the political elite the bulk of foreign workers and much of the

countryrsquos rich cultural heritage Mr McGoldrick also warns about weak governing capacity

He already sees bureaucratic rivalries as well as sloth as impediments to the countryrsquos relief

efforts Others point out that politicians have long been interested mainly in their own well-

being fruitlessly debating a new constitution for the past seven years while paying little

attention to governing

Effective local councils would surely be most useful administration to have in place now Yet

Nepal has had no local elections since 1999 Instead civil servants run things Many are

notorious for being unaccountable corrupt and prejudiced towards the lowest castes Donors

face a quandary wondering how much to trust questionable partners while rushing to help

Nepal has never been an easy place in which to make aid useful In this grievous emergency

it will be harder yet

22042015 Family companies To have and to hold | The Economist

Special reportFamily companies

Family companies

To have and to holdFar from declining family firms will remain an important feature of globalcapitalism for the foreseeable future argues Adrian Wooldridge

FAMILIES HAVE ALWAYS been at the heart of

business Family companies are among the

worldrsquos oldest The Hoshi Ryokan an inn in

Japan has been in the same family since 718

Kongo Gumi a Japanese family construction

firm was founded even earlier in 578 but went

bust in 2006 The Antinori family has been

producing wine in Tuscany since 1385 and the

Berettas have been making guns since 1526 Family companies played a starring role in the

development of capitalism think of the Barings or the Rothschilds in banking or the Fords and

Benzes in carmaking

Family companies are ideally suited to the early stages of capitalism They provided two of the

most important ingredients of growth trust and loyalty in a world where banking and legal

institutions were often rudimentary and poor communications made farshyflung activities hard to

control It was easier to raise money from kinsmen than from strangers And it was safer to send

a relative than a hired hand to expand the business abroad

Business enterprises also provided patriarchs with a way of transmitting wealth and status to

future generations ldquoThe bankerrsquos calling is hereditaryrdquo said Walter Bagehot a distinguished

19thshycentury editor of this newspaper ldquoThe credit of the bank descends from father to son this

inherited wealth brings inherited refinementrdquo Family dynamics sometimes dictated business

strategies the Rothschild bank helped to globalise finance when Mayer Amschel Rothschild the

dynastyrsquos founder sent his five sons to set up banks in different countries

Serious thinkers have given surprisingly little thought to the family dynamics behind the early

stages of capitalism Novelists are a better guide to this subject than classical economists In

ldquoDombey and Sonrdquo Charles Dickens describes how Dombey wants to pass his business on to his

son but is frustrated by a scheming manager Thomas Mannrsquos ldquoBuddenbrooksrdquo is about the

children of a great business founder turning their backs on the bourgeois virtues that built the

familyrsquos fortunes

Business gurus have also given family firms short shrift Alfred Chandler the doyen of business

historians regarded family companies as relics of an earlier era that found it hard to muster the

capital and talent needed to compete The real engines of modern capitalism were public

companies owned by diverse shareholders and run by professional managers Peter Drucker

the doyen of management theorists reckoned that the drivers of these great engines were

professional ldquoknowledge workersrdquo not business patriarchs and their families

Chandler was right that public companies made enormous advances in the late 19th and early

20th centuries as capitalshyintensive businesses turned to public markets for funds But he was

wrong in his prediction that they would push family companies to the margins of the modern

economy Even in the AngloshySaxon world where public companies gained the most ground

families held on to some of the most prominent businesses such as Walmart the worldrsquos largest

retailer and Ford one of the largest car companies In continental Europe public companies

remained the exception

Thirtyshyeight years after Chandler published his paean of praise for the public company ldquoThe

Visible Handrdquo family companies still provide many of the necessities of life You can get your

news from the New York Times and the Wall Street Journal your car from Ford or Fiat your

smartphone from Samsung or LG and your groceries from Walmart or Aldi In a scholarly

book ldquoDynastiesrdquo the late David Landes of Harvard University demonstrated that you could

write a respectable history of capitalism through the lens of family histories You could write an

equally respectable survey of the state of modern capitalism by telling the story of a dozen family

Family businesses make up more than 90 of the worldrsquos companies Many of them are small

corner shops This special report will focus on the larger companies that shape the global

economy and develop worldshychanging products and ideas The point is to show that family

businesses can flourish in the most sophisticated areas of the modern economy

Defining these larger family companies is tricky If you restrict the term to companies that are

both owned and managed by family members you will end up with remarkably few If you

expand it to include companies that are run by the founders you will take in tech giants such as

Google and Facebook which few people would see as family firms The Boston Consulting

Group has produced a reasonable definition made up of two elements a family must own a

significant share of the company concerned and be able to influence important decisions

particularly the choice of chairman or CEO and there must have either been a transition from

one generation to the next or in the case of a foundershyowned firm plans for such a transition

On that definition BCG calculates family companies represent 33 of American companies

and 40 of French and German companies with revenues of more than $1 billion a year In

Asia and Brazil they are even more prevalent (see chart 1)

Powerful families are also adept at using pyramidshystyle business holdings to keep a controlling

number of shares in other companies Randall Morck of the University of Alberta points out

that the Wallenberg family controls companies that represent up to half the market

capitalisation of the Swedish stockmarket including global giants such as Ericsson The Agnelli

family controls 104 of the Italian stockmarket In Hong Kong the top 15 families control assets

worth 84 of GDP in Malaysia 76 in Singapore 48 and in the Philippines 47

The majority of the worldrsquos most successful mediumshysized companies are also family firms

Hermann Simon chairman of SimonshyKucher amp Partners a consultancy calculates that they

account for twoshythirds of Germanyrsquos mighty Mittelstand including world leaders in doors

(Dorma) balancing machines (Schenck) and industrial mixers (Ekato) Italy has a large

number of familyshyowned global champions in tasteshyconscious niches Ferrari in cars Versace in

fashion Ferrero Rocher in chocolates

Family companiesrsquo sense of ownership gets round two of the most troubling defects of moderncapitalism shortshytermism and the soshycalled agency problem

The most striking thing about family companies is arguably not their average quality but their

variance they have more than their share of pariahs as well as paragons Portugalrsquos Espiacuterito

Santo was one such pariah massive debts turned the familyshyowned financial conglomerate into

one of Europersquos largest corporate failures obliging the government to save the family from the

consequences of its own greed and folly

The best thing about family companies is their sense of ownership That helps them get round

two of the most troubling defects of modern capitalism the focus on shortshyterm results and the

soshycalled agency problem (the potential conflict of interest between owners and managers) On

their own admission the CEOs of public companies find it hard to think about the long term

because they have to focus on ldquohitting the numbersrdquo every quarter and the length of their job

tenure has fallen steeply over the past decade Family owners regard their shares as longshyterm

investments and keep a close eye on management even if they do not run the company

Clogs to clogs

The worst thing about family companies is succession This is difficult in all organisations but

especially so in family firms because it involves the biological as well as the institutional sort and

throws in a mass of emotions Family businesses that restrict their choice of heirs to their

children can be left with dunces Moreover wealth corrupts a principle so wellshyestablished that

many languages have a phrase for it In English it is ldquoclogs to clogs in three generationsrdquo in

Italian ldquofrom stables to stars to stablesrdquo in Japanese ldquothe third generation ruins the houserdquo and

in Chinese ldquowealth does not survive three generationsrdquo According to the Family Business

Institute an American consultancy only 30 of family businesses survive into the second

generation and 12 into the third A mere 3 make it into the fourth and beyond

More broadly family businesses often suffer from human quirks Alfred Sloan the founder of

General Motors argued that the aim of professional management was to produce ldquoan objective

organisationrdquo as distinct from ldquothe type that gets lost in the subjectivity of personalitiesrdquo That

was much in evidence at his great rival the Ford Motor Company where Henry Fordrsquos

idiosyncratic behaviour almost ruined the business But that ldquosubjectivity of personalitiesrdquo can

also enable family bosses to make brilliant decisions which elude professional managers

This special report will argue that family companies are likely to remain a significant feature of

global capitalism for the foreseeable future thanks to a combination of two factors Family

companies in general are getting better at managing themselves they are learning how to

minimise their weaknesses while capitalising on their strengths At the same time the centre of

the modern economy is shifting to parts of the worldmdashmost notably Asiamdashwhere family

companies remain dominant McKinsey a consultancy calculates that by 2025 an extra 4000

foundershy or familyshyowned companies could hit sales of $1 billion If this proves correct family

firms in emerging markets might then make up nearly 40 of the worldrsquos large companies

compared with 15 in 2010 McKinseyrsquos habit of conflating foundershyowned firms and family

firms is less problematic in Asia than it is globally because foundershyowned firms there are more

likely to become true family firms The consultancy is right too about the direction of change

the worldrsquos most dynamic region also happens to be the friendliest to family businesses

To understand family companies better business analysts will need to pay more attention to

their internal dynamics These firms are not just immature public companies nor are they just

highly successful startups Some of their distinctive behaviour is explained by their ldquofamilynessrdquo

in the same way that public companiesrsquo behaviour is explained by their ldquopublicnessrdquo Investors

will need to look more closely at things like succession planning and whether family members

are getting on well together Academic theorists reflecting on the reasons why firms exist will

need to add one more their role as a mechanism for the transmission of property to future

generations

Since family companies are not just surviving but flourishing many assumptions about the

nature of modernity will have to be rethought Classical sociologists and classical economists

both predicted that family businesses would retreat as societies became more rational and

bureaucratic Families themselves would become nothing more than ldquohavens in a heartless

worldrdquo as Christopher Lasch a historian put it But that orthodoxy is crumbling in the face of

growing evidence that family dynasties can do well in even the most sophisticated modern

societies

From the print edition Special report

01 Ambit Value vs Gr

02 Wrecked by Debt

03 Land-shackled economies_ The paradox of soil _ The Economist

05 Governance for growth (2)

06 RUpee BOA ML

07 Maruti

08 wwweconomistcom_node_21650036_print

09 Family companies_ To have and to hold _ The Economist

Strategy

lsquoValuersquo vs lsquoqualityrsquo The debate on what matters more value or quality has always been a hotly contested one and has gained more prominence recently given the sharp share price correction in many of the expensive good-quality names

Our preferred investment approach traditionally has been to invest in Good amp Clean companies which implies investing in firms with high corporate governance standards and an efficient capital allocation track record Our Coffee Can and ten-bagger portfolios have been modeled on this approach (click here for our 17 November 2014 note on the ldquoCoffee Can Portfoliordquo and here for our 5 January 2015 note on ldquoTenbaggers 40rdquo) In creating these portfolios we have been agnostic to valuations as beginning period valuations do not stay as relevant in shaping long-term returns after having been already screened for quality

In our 20 November 2014 note ldquoRole of valuations in long-term investment successrdquo we had shown that the five Coffee Can portfolios from 2000 to 2004 had gone on to beat the Sensex over the subsequent ten years in spite of higher beginning PEs

Exhibit 1 Coffee Can portfolios beat the Sensex in spite of higher beginning period valuations CAGR returns for ten-year period startinghellip

CCP All-cap returns

Sensex returns

Beginning-period Sensex PE

Beginning-period CCP PE

30 June 2000 ndash 30 June 2010 167 141 227 318

29 June 2001 ndash 30 June 2011 217 185 169 201

28 June 2002 ndash 29 June 2012 190 183 142 160

30 June 2003 ndash 28 June 2013 251 183 117 129

30 June 2004 ndash 30 June 2014 316 181 125 135

Another plot that we have often used to illustrate this point on valuations is displayed in Exhibit 2 below This exhibit plots FY04 valuations as measured by PE vs ten-year relative returns over FY04-14 for the BSE200 universe of firms

The value of the R-squared makes the story self-explanatory A zero for this value indicates that the beginning-period valuations do not play any meaningful role in explaining stock returns over the next ten years

Exhibit 2 Data over FY04-14 suggests beginning period valuations do not materially influence investment returns over longer time frames

Source Ambit Capital research Note FY04-14 returns here are stock returns relative to Sensex Trailing PE has been restricted to 100

Whilst our approach of sticking to quality irrespective of valuations has worked so far (in both back-tested and live portfolio performances) there is ample literature available especially in the developed world context to suggest that value investing does deliver outperformance Thus in this note we address this disconnect between the two approaches value and quality

Rsup2 = 00025

- 200 400 600 800 1000

FY04 price to earnings

In this note we address the age-old debate on lsquovaluersquo vs lsquoqualityrsquo

Strategy

Subsequent returns

Q1 83 105 125 132 136 133

Q2 144 145 154 167 177 171

Q3 127 136 153 152 158 133

Q4 130 123 126 136 135 114

Q5 168 163 159 150 141 94

Value premium

Strategy

Q1 347 277 255 233 213 176

Q2 211 186 177 176 175 164

Q3 120 116 127 125 125 120

Q4 27 64 68 94 99 127

Q5 -15 30 56 64 69 70

average (Q1-Q4) 176 161 157 157 153 147

Q5 minus average -192 -131 -101 -93 -84 -77

Rsup2 = 07912

(600) (100) 400 900Sens

SensexSensex EPS

Strategy

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

b) Why long term

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

Subsequent returns

Q1 83 105 125 132 136 133

Q2 144 145 154 167 177 171

Q3 127 136 153 152 158 133

Q4 130 123 126 136 135 114

Q5 168 163 159 150 141 94

Value premium

Strategy

Q1 347 277 255 233 213 176

Q2 211 186 177 176 175 164

Q3 120 116 127 125 125 120

Q4 27 64 68 94 99 127

Q5 -15 30 56 64 69 70

average (Q1-Q4) 176 161 157 157 153 147

Q5 minus average -192 -131 -101 -93 -84 -77

Rsup2 = 07912

(600) (100) 400 900Sens

SensexSensex EPS

Strategy

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

b) Why long term

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

Subsequent returns

Q1 83 105 125 132 136 133

Q2 144 145 154 167 177 171

Q3 127 136 153 152 158 133

Q4 130 123 126 136 135 114

Q5 168 163 159 150 141 94

Value premium

Strategy

Q1 347 277 255 233 213 176

Q2 211 186 177 176 175 164

Q3 120 116 127 125 125 120

Q4 27 64 68 94 99 127

Q5 -15 30 56 64 69 70

average (Q1-Q4) 176 161 157 157 153 147

Q5 minus average -192 -131 -101 -93 -84 -77

Rsup2 = 07912

(600) (100) 400 900Sens

SensexSensex EPS

Strategy

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

b) Why long term

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

Subsequent returns

Q1 83 105 125 132 136 133

Q2 144 145 154 167 177 171

Q3 127 136 153 152 158 133

Q4 130 123 126 136 135 114

Q5 168 163 159 150 141 94

Value premium

Strategy

Q1 347 277 255 233 213 176

Q2 211 186 177 176 175 164

Q3 120 116 127 125 125 120

Q4 27 64 68 94 99 127

Q5 -15 30 56 64 69 70

average (Q1-Q4) 176 161 157 157 153 147

Q5 minus average -192 -131 -101 -93 -84 -77

Rsup2 = 07912

(600) (100) 400 900Sens

SensexSensex EPS

Strategy

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

b) Why long term

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

Q1 347 277 255 233 213 176

Q2 211 186 177 176 175 164

Q3 120 116 127 125 125 120

Q4 27 64 68 94 99 127

Q5 -15 30 56 64 69 70

average (Q1-Q4) 176 161 157 157 153 147

Q5 minus average -192 -131 -101 -93 -84 -77

Rsup2 = 07912

(600) (100) 400 900Sens

SensexSensex EPS

Strategy

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

b) Why long term

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

Q1 -184 -137 -100 -73 -45 -10

Q2 -77 -21 -15 02 13 21

Q3 10 36 39 48 46 34

Q4 166 121 121 99 89 38

Q5 239 189 161 144 136 69

average (Q1-Q4) -21 00 11 19 25 21

Q5 minus average 261 189 150 125 111 49

2000 30 June 2000 ndash 30 June 2010 167 -57 237

2001 29 June 2001 ndash 30 June 2011 217 27 186

2002 28 June 2002 ndash 29 June 2012 190 07 182

2003 30 June 2003 ndash 28 June 2013 251 35 209

2004 30 June 2004 ndash 30 June 2014 316 39 266

Average 228 10 216

b) Why long term

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

of firms

with RoCEgt15

Q1 55 49 98

Q2 68 124 133

Q3 64 80 106

Q4 62 87 108

Q5 62 140 174

Ten-baggers 23 23 37 13 3 100

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

Ten-baggers 10 25 38 25 8 4 100

Ten-baggers 20 30 30 23 10 7 100

Ten-baggers 30 33 23 30 10 3 100

6M ADV (US$ mn)

Trailing PE

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Strategy

2500Ja

Lupins share price

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Mayfair

location has not

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Francisco

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

of the

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

living

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Totalvalue

Owneroccupancy

Housingdensity

Populationdensity

0 to 039 04 to099

1 to 199 2 to 399 4 to 1499 15 to2499

Over 250

economy benefits

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

person

to new building

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

April 20 2015 411 PM ET

ByJon Hilsenrath

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Politicalstability

Regulatoryquality

Percentile

Asia ex Japan

Percentile

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

-10 -5 0 5 10

IndiaThailand

ChinaMalaysia

TaiwanAsia average

IndonesiaKorea

Hong KongSingapore

Philippines

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

0 5 10 15

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

1960 1970 1980 1990 2000

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

YearsYears

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

04 05 06 07 08 09 10 11 12 13 14

Stalled Projects

Infrastructure

Industrial

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Dependent variable

040(520)

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Whether minormajor

penaltyProceedings

Whether minormajor

penaltyProceedings

defence

hearing

charges by AGS

documents by

Examination of AGS

comments

Final Order

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

77603840

60602311

2013 2014

25-35-

30-502020

-05-30

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

2014F 2015F

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

26 A pr i l 2 015

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

26 Ap r i l 201 5

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

26 A pr i l 2 015

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

26 Ap r i l 201 5

- 05 10

15 20 25 30 35 40

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

The Economist

miles) away

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

survivors exposed

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Family companies

Benzes in carmaking

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Clogs to clogs

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

generations

societies

02 Wrecked by Debt

06 RUpee BOA ML

07 Maruti

Documents

Strategy - Reliance Mutual Fund have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making