India: Can the Tiger Economy Continue to Run?

India: Can the Tiger Economy Continue to Run?

India s GDP is on the rise US$ trillions Nominal GDP (left axis) GDP growth (right axis) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 % 30 25 20 15 10 5 0-5 -10-15 Source: International Monetary Fund.

India s GDP per capita keeps growing Source: International Monetary Fund.

India s share of world GDP is rising % GDP based on purchasing-power-parity share of world total 7 6 5 4 3 2 1 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: International Monetary Fund.

Thousands India s international trade US$ billions 350 300 250 200 150 100 50 Exports Imports 0 1990 1994 1998 2002 2006 2010 Source: Reserve Bank of India.

India s current-account balance US$ billions Current-account balance (left axis) % of GDP (right axis) 20 10 0-10 -20-30 -40-50 -60-70 -80-90 -100-4 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: International Monetary Fund. Percent 2 1 0-1 -2-3

India tightens monetary policy in fear of inflation Target interest rates of the central bank Policy interest rates, percent 16 14 12 10 Russia Brazil 8 China 6 4 2 India 0 2008 2009 2010 2011 Source: Bloomberg.

India s population is catching up with China s Billions Population trends of India and China 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8 India China 0.7 0.6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: International Monetary Fund.

India has large young population Age 15-24 Millions 250 200 India China United States 150 United Kingdom 100 50 0 2005 2010* 2015* * estimated Source: United Nations.

India s high-technology exports have significantly increased US$ billions 12 High-technology exports 10 High-technology exports (% of manufactured exports) 8 6 4 2 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 % 10 9 8 7 6 5 4 3 2 1 0 Source: World Bank.

Industries contribution to India s GDP Source: World Bank.

Foreign direct investment in India on the rise US$ billions 45 Foreign direct investment, net inflows (left axis) 40 % of GDP (right axis) 35 30 25 20 15 10 5 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 % 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Source: World Bank.

India s market capitalization surges US$ trillions % 2.0 160 1.8 140 1.6 Market capitalization of listed companies 1.4 % of GDP 120 1.2 100 1.0 80 0.8 60 0.6 0.4 40 0.2 20 0.0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: World Bank.

India s electricity shortage in 2008-2009 Energy(MU) Peak(MW) Requirement 777,039 109,809 Availability 691,038 96,785 Shortage 86,001 13,024 Shortage(percent) 11.1 11.9 Source: Central Electricity Authority, Government of India.

Existing infrastructure in India 2009 Length of roads(kilometers) 3,516,452 Main roads(kilometers) 666,452 Paved roads(percent) 47 Access to all-season-roads(percent) 61 Road density(kilometers/1000 sq. kilometers) 1,115 Rail track length(kilometers) 63,327 Number of ports 199 Turnaround time(days) 3 Airports 125 International airports 11 Sources: Government of India, World Bank.

Investment requirements in infrastructure 2007-2011 Sector US$ billions Transportation 115-154 Roads 50-55 Railways 45-68 Ports 11-20 Airports 9-11 Power and other sectors 191-250 Total 306-404 Sources: Government of India, World Bank.

India relies heavily on rural roads India's road network Expressways 0.1% National highways 2% State highways 4% Major district roads 14% Rural roads 80% Source: World Bank.

Working-age population grows rapidly in India Over the next 10 years, India will add over 5 workers for every 1 worker added by China... Addition to working-age population 2010-2020 (in millions) with the world s largest addition of people to the workforce, it is estimated that over 100 million households will join the middle class Number of Indian households (in millions) % by annual income India Latin America 50 136 1 5 31 1 14 3 7 31 34 46 Wealthy Middle class China U.S. Japan -8 Europe -21 11 23 40 64 50 32 26 15 2000 2008 2020 2030 Aspiring middle class Impoverished Source: Morgan Stanley.

Size of capital markets relative to GDP 2010 Percent of GDP 500 400 300 200 Securitized loans Bank loans Private bonds Public bonds Stock market capitalization 100 0 U.S. Japan Western Europe Middle Other developed China India East and Africa Other Asia Latin CEE and America CIS* * Central and Eastern Europe and Commonwealth of Independent States Source: McKinsey Global Institute. Emerging markets

Investment rates have increased across all emerging market regions since 2000 Investment, percent of GDP 50 45 40 35 30 25 20 15 10 5 0 24.1 21.4 19.3 Africa n.a. 26.4 21.4 Eastern Europe 20.3 21.9 19.6 Latin America 26.4 23.6 18.5 Emerging Asia excluding China and India 28.8 35.2 43.9 14.6 23.6 39.5 n.a. 1970 2000 2008 22.1 20.2 China India Other emerging countries Source: McKinsey Global Institute.

High investment rates in China and India Investment, percent of GDP 60 1970 1990 2000 2009 50 48.7 40 35 35.2 37.9 30 20 28.8 14.6 27.8 23.5 23.6 24.6 20.5 20.6 10 0 China India Other emerging countries Source: McKinsey Global Institute.

Percent of surveyed managers reporting business constraints Source: World Bank. Indicators China India Corruption 27 25 Courts 25 3 Crime 20 12 Procedures for business start-up (percent of GNI per capita) 9 74 Labor regulations 21 9 Tax rates 37 28 Policy uncertainty 33 9 Rigidity of employment index (0 = less rigid to 100 = more rigid) 24 41

Quality of life 2008 Indicators China India Access to improved water source (percent of population) 89* 88* Access to improved water source (percent of urban population) 98 96 Access to improved sanitation facilities (percent of urban population) 58 54 Carbon dioxide emission (metric tons per capita) 5.0 1.4 HIV prevalence (percent of ages 15-49) 0.1** 0.3 Incidence of tuberculosis (per 100,000 people) 97 168 Source: World Bank. * 2007 ** 2009

Corruption Index 2010 Source: Transparency International. Rank Country Score 1 Denmark 9.3 2 New Zealand 9.3 3 Singapore 9.3 4 Finland 9.2 5 Sweden 9.2 6 Canada 8.9 7 Netherlands 8.8 8 Australia 8.7 9 Switzerland 8.7 10 Norway 8.6 20 United Kingdom 7.6 22 United States 7.1 78 China 3.5 87 India 3.3 10 = Low 0 = High

Sanjay Patel slides

India is one of the fastest growing economies in the world Average annual real GDP grow th rate (2005-2010) 16%CAGR in value of 11.2% BSE over the same 8.6% period 3.4% 4.4% 0.9% 0.3% Source: IMF. China India Russia Brazil U.S. U.K.

May-01 Mar-02 Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 However, Indian markets trade at expensive multiples 36.0x Historical P/E trend of BSE 500 30.0x 24.0x 18.0x 12.0x Avg: 19.4x 6.0x 0.0x Source: CapitalIQ; as of January 1, 2011.

Most businesses are family-run, dominated by a Promoter Top 500 publicly listed companies (by ownership) 14% 76% 1% 9% Family Controlled Businesses Public Sector Undertakings Multi-National Corporations Pure Professional Firms Source: ASK Investment Managers, Capital Line. Note: Top 500 publicly listed companies as per market cap., excluding 46 banks and financial institutions (as of March 31, 2011).

Performance of share price since issue Primary issues in India have underperformed the market 0% 2006 2007 2008 2009 2010 160-10% -20% -30% -40% 120 80 40 Number of issues -50% Simple Average Source: Bloomberg. Note: Figures represent a simple average of the difference between issue price and current market price; Chart shows performance of 459 issues between 2006 and 2010. Number of Issues 0

PIPE deals in the Indian markets are at significant premiums Valuations of PIPE deals in the Indian markets (2007-2011)# 22.7% 19.3% 17.5x 14.9x Mean Median Premium on 6-Month Average Price Source: Venture Intelligence, Capitaline, Stock Exchange Filings, Bloomberg. Note: Data for PIPE transactions from 2007, above 5% stake and above $20 million. Mean EV/EBITDA Multiple Median

There is a high degree of leverage in Indian companies Total Debt based on Debt/EBITDA of a sample of 1,050 companies 5x-8x $68.5 billion 8x+ $41.7 billion 0x-3x $60.5 billion 3x-5x $64.8 billion Source: CapitalIQ. Note: Companies listed on the BSE with market cap. greater than $1 million; excludes banks and financial institutions, companies with negative EBITDA, LFY numbers for Debt and EBITDA.

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