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Vol 5 - Issue 10 | February 2012 | Rs.3.

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Resources, Resources, Resources


Having got that India bit out the way, we will just focus on the tenyear trends that are indicated in the last column of the Periodic Table. We hope to have a more detailed review in the next edition of The Wise Investor. Of the eight categories featuring in quartile one, seven are resource based. Despite two years of gut wrenching declines (2008 and 2011), India provides the exception to the resources theme. The Indian presence in quartile one also tells you that over longer periods, one-year performances take the backseat in a big way. Interestingly the country topping on ten-year performance since December 2001 had finished in the last slot in 2000. Of note is the fact that emerging market bonds have outpaced emerging market equities. Obviously on risk-adjusted returns, they would stack up in a superior manner than the 40 basis points (a basis point is 0.01 per cent) that separates them in absolute terms. The fourth quartile is a preserve of the developed world. Globally stocks have barely budged with a gain of 1.70 per cent on the back of returns in emerging markets. Please go through the Periodic Table in detail to draw more insights. Image of the Month

T P Raman

Managing Director

Perspective
The Sundaram Periodic Table of Returns for different asset classes, which has been now updated to 2011, is presented in Page 6 of this edition of The Wise Investor. The numbers in each cell is the performance in percentage in U S Dollar terms for the sake of uniformity. The Periodic Table provides performance of key asset classes, geographies and countries. For each calendar year, the asset classes have been ranked based on performance. The asset classes have also been ranked based on performance for the 10-year period between 2001 and 2011. Different shaded bands indicate quartiles one to four based on performance for each period. The Periodic Table is an easy way to track performance of different asset classes across different time periods. In 2011, key India indices such as S & P CNX Nifty, BSE Sensitive Index and MSCI India suffered declined that ranged between 20 25 per cent.Yet in the Periodic Table for 2011, India for first time in more than 15 years figures at the last slot with a decline of 38 per cent. In case, you wonder what has caused such a huge gap, it is the currency effect.The rupee had a devastating declines of 18 per cent in 2011. This is the reason why foreign investors focus on the currency risk in a major way in their investment decisions. Indian investors should do likewise if they are investing in overseas assets. Sundaram Asset Management
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Source: Matt, The Telegraph, January 20, 2012 via Investment Postcards From Cape Town The Wise Investor February 2012

India View

Equity

Pullback & Prospect of Quick Turns


per cent) was also a surprise, which helped buoy the market. The sharp pullback in equity markets has helped in a sentiment boost for the economy as a whole, but this has to be viewed in balance. India's problems come from a large trade deficit especially due to energy imports and price levels. A reduction in that on a sustainable basis will be the only way to alter the volatility of the markets. India could face another bout of a slowdown if oil prices surge, which is likely on the back of an extreme winter and political tensions in the Middle East.

Satish Ramanathan
Head - Equity Sundaram Asset Management

There is a gradual slowdown in the economy, which will help curb inflationary pressures but only for some time. Inflation is coming off on the back of a record winter output of onions, and a very favorable base. Further, an appreciating rupee will also give some statistical advantage but not for long. We remain wary of the cycle reversing very quickly and inflation re-emerging as a threat for the economy. There are signs that consumption is losing steam, though it is still more predictable than other businesses. The overall industry results indicate that momentum is flagging in the consumer space and also limited ability to pass on price increases. We are also witnessing a scenario of lower farm incomes on the back of higher input costs and wages, which could translate into a lower surplus than previously thought. While too early to determine a trend, it is a key variable to watch. We are noticing a significant cooling off of demand in motorcycles, cars and other consumer items, though consumer staples recorded a strong quarter. Liquidity in the banking system still remains tight on back of record government borrowings, which promise to derail the weak growth momentum. Interest rates had eased immediately after the CRR cut, but have not fallen further. While infrastructure stocks have flared up on the back of low valuations, the earnings this quarter have been disappointing and there seems no respite in either order flow or margins, hence we continue to remain cautious on the sector. Market Overview:The smart January rally has helped India come back on the radar of global investors, and the conditions of higher global liquidity and a favorable exchange rate were good tailwinds. But Indias core issues have not been sorted and we can expect some pullbacks from time to time. We believe that while quality stocks may underperform from time to time on the back of such rallies, we will need to remain focused and buy quality free cash flow stocks when they dip.
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We had a good start for equity markets in an otherwise cold winter, and much of the losses in December were made up and in some cases prices of stocks have gone back to the October 2011 levels. Some of it was a relief rally and some flows could be a liquidity rally. But we remain cautious, as market movements do not signal the actual slowdown in the economy. Indian markets had a 15 per cent rally in January in rupee terms and close to 20 per cent in dollar terms. Indian markets had declined considerably in the previous quarter and valuations were attractive. More importantly, Indian rupee had depreciated considerably, giving room for contrarians to buy the equity Market. Further, banks were allowed to raise overseas deposits at a higher interest rate, which effectively stopped the slide in the currency. Close to 3 billion dollars entered in January, resulting in a sharp turnaround in markets. Will this sustain? Another surprise in equity markets was speed with which Europe acted to reduce default risk in Italy and other countries, by infusing a significant amount of liquidity. Infusion of close to 500 billion Euros with prospects of increasing by another trillion Euros helped cool the bond markets and reduced fears of a rollover crisis from becoming bigger. This has been the main reason for equity markets to rally globally, especially emerging markets. While Indian markets have been among the better performing, other emerging markets have not been far behind such as Brazil. The Reserve Bank of Indias move to cut the Cash Reserve Ratio for banks by 50 basis points (a basis point is 0.01 Sundaram Asset Management

The Wise Investor February 2012

India View

Bonds

Liquidity strains
In its quarterly monetary policy, the RBI announced a cut in the Cash Reserve Ratio of 50 basis points (a basis point is 0.01 per cent) to 5.5% while leaving policy interest rates unchanged. The policy statement indicated that the cut in CRR was needed to address the high level of deficit in the inter-bank liquidity. This cooled rates in short-term segment, but was not enough to pull down yields significantly in 3 month to one-year segment as appetites remained low and huge issuance by banks remained pending. Outlook: The RBI usually prefers to maintain inter-bank liquidity within +/-1% of net demand and time liabilities (NDTL). The current LAF figure is about negative 2 times of this preferred level. It can be reasonably expected that RBI may take further steps to ease liquidity. There is possibility that RBI may again cut CRR in March if extreme liquidity tightness prevails in market following advance tax outflow.Yet one must put up with the fact that this is based on expectation that the inflationary pressures will ease off gradually giving leeway to RBI to follow a more accommodative stance. Further any rate action will be dependent on one key factor and that is the governments effort on fiscal consolidation.While maintaining its inflation forecast of 7% by March 2012, the RBI has highlighted its concerns about upside risks to inflation. The policy statement has pointed out few key concerns such as an increase in administered prices of coal, oil and electricity, higher international crude oil prices, depreciation of the rupee, high government spending (and resultant deficit), structurally higher protein-related food prices and the high level of non-food manufactured inflation. The central bank has clearly indicated it will look for some signs of fiscal consolidation, which will shift the balance of aggregate demand from public to private and from consumption to capital formation before it is comfortable with lowering the policy rates without the imminent risk of resurgent inflation. In the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending The government will announce its budget for FY 2013 (beginning 1 April 2012) in mid-March. Subdued revenue collection on still-weak growth and higher expenditure are likely to keep the fiscal deficit at high levels. Strategy: We intend to allocate investments in the different maturity buckets depending on the relative attractiveness. In the duration products, we intend to run position keeping in mind the headwinds faced by the duration products in the form of higher supply.
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Dwijendra Srivastava
Head - Fixed Income Sundaram Asset Management

Liquidity in money markets had deteriorated in December and continued in deficit mode throughout January. Call rates reflected tightness and touched peak of 9.50% and were in a range of 8.50% to 9.50%. This was caused by slew of factors such as a weakening rupee forcing continuous intervention in forex markets by the Reserve Bank of India (RBI), sluggish FII inflows on account of risk aversion on flagging global economic growth and concerns over Euro region. As Central Bank gave rate cuts a miss in the last inter-quarter monetary policy in month of December avoiding signalling policy reversal, market pinned hopes on a lower WPI number to feed into central banks decision making leading to a CRR cut to ease tight liquidity conditions. December WPI number did ease to two-year low of 7.5% in line with market consensus but mainly on account of base effect and lower food inflation. Non-food manufactured goods (core) inflation remained elevated at 7.7% way above comfort zone of RBI. This led to forming of a market consensus of status quo by central bank in its quarterly monetary policy to be held in the month of January. This view led to rise in rates across the curve and resulted in further inversion of the yield curve. The 3 month to one year Certificate of Deposits traded in range of 9.90% to 10%, though significant activity remained in secondary market as most banks remained reluctant to raise money in primary markets. The 10-year G-Sec, though well supplied, dropped at one stage to 8.10% (8.59% December closing) during the month as central bank continued with ad hoc open market operations. Sundaram Asset Management

The Wise Investor February 2012

Eye on the Market

The Outside View

Capital Preservation

China & India


There has been much debate with investors about the exact timing of a China easing cycle. GREED & fears base case is that more meaningful action is likely to come by in the second quarter by when it will be clearer that economic activity is slowing and inflation falling. Still the A-share market reacted positively this week to another signal that Beijing does not want the domestic stock market to fall any further. Meanwhile, if timing of easing of monetary policy and of policy towards the all- important property market remains the key issues for China, the key variable for India remains, in GREED & fears view, the currency. On this point, recent weeks have seen concrete evidence that the Indian authorities are now much more aware of the potential vulnerability of the currency and are desperate to prop it up. Thus, the government announced on 1 January that it has decided to allow Qualified Foreign Investors (QFIs), including foreign individuals, groups or associations but not FIIs, to directly invest in Indian equity market. But perhaps more important was the deregulation of NRI deposits announced last month. The Reserve Bank of India (RBI) on 16 December deregulated the interest rates paid by banks on non-resident (external) rupee deposits and ordinary non-resident accounts. As a result, Indian banks are now offering NRIs one to two-year deposits at 9.5%, up from 3.8% in December. This yield is clearly attractive to always yield obsessed Indian savers. So, it will be interesting to see if they trust their own currency.These measures have in the near term boosted the currency, as has this weeks decision to allow 100% FDI in single-brand retail. But GREED & fear still remains cautious given the combination of stubborn inflation and fiscal vulnerability in the context of slowing growth. The other problem is that currency vulnerability is clearly a constraint on the RBIs ability to commence an aggressive easing cycle Christopher Wood, Managing Director & Strategist of CLSA Asia-Pacific, an independent research outfit and author of the weekly report GREED & Fear. Source: www.clsa.com
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S.Vaidya Nathan
The Products Team Sundaram Asset Management

2011 has once again showcased the importance of capital preservation in asset allocation decisions. There is no room for complacency on this score even if your risk taking ability is high and even if you are a high net-worth investor. The focus here is not on capital preservation on your entire portfolio. The focus is on the importance of what an investor is willing to allocate for equity or other risky assets. Cash is king in certain phases and that is true even for the money you are willing to invest in risky assets. When markets are at very high valuations (as they were in 2007) and/or economic conditions are dire (as they have been since 2007), staying out of equity would be a smart thing to do. Staying in cash is not bad. Cash is not necessarily an idle asset. In periods such as this, even it were an idle asset, is it is worth the while ?. It is not. You could have invested in short-tenure fixed income funds and earning about 6-7 per cent a year. The only problem is in economic conditions and markets such as what have had for almost five years and what may lie ahead for the next few years, buy and hold for the long term is not a paying proposition. Imagine if anybody had done that at any stage since 1990 in Japan. They would lost capital and also suffered opportunity losses. Of course, India is not Japan, but there come times when you must sit back and observe than participate. Such an approach can be a great value add to the wealth creation process. Capital preservation is the core of wealth creation.What you could do is to also trade smartly rather than become a slave of the buy and hold. Even if you had participated in 50% of the rally in 2009 and preserved capital in other years, you would be sitting pretty, Think capital preservation for even the risky part of your portfolio. Sundaram Asset Management

The Wise Investor February 2012

By Invitation

The Mish-take
accident he finally gets one correct. Some things are so obvious even Bernanke seems to understand. His labor weakness statement is one of them. I said similar things with far more details and reasons, in Fewer Nonfarm Employees Now Than December 2000; Unemployment Rate: Some Things Still Don't Add Up; Obamanomics? Please (check on the link to the above-titled post) for a series of charts showing just how weak the recovery has been and just how understated the unemployment rate is. Zero Through 2014: The strange thing here is that although Bernanke seems to understand the likeliness of further economic weakness, most analysts and writers are tooting the horns of an economic recovery, while chastising Bernanke for promising to hold rates low until 2014, as if the decline in unemployment rate is meaningful. I disagree with the Fed's rate decision for a different fundamental reason: a bunch of academics chasing their tails cannot effectively set interest rates (only the market can).That simple fact has been proven is spades. Analysis of Bernanke's "Labor Weakness" Statements: Unfortunately, Bernanke's statements offer surprising little economic insight. For example, please consider the Fed's estimate that the "unemployment rate will average 8.2 percent to 8.5 percent in the fourth quarter". Let's assume Bernanke is correct. Is that a meaningful projection? The short answer is the projection, even if totally accurate, is perfectly useless. Let's analyze "why? in light of Bernanke's estimate that it takes 125,000 jobs a month to keep up with demographics (birthrate plus immigration). Three Cases In Which Unemployment Rate Stays Flat are: Is the Fed projecting 125,000 per month in line with expected demographics? Is the Fed expecting 200,000 jobs a month with a rising participation rate that holds the unemployment rate steady? Is the Fed expecting 50,000 jobs a month with a falling participation rate that holds the unemployment rate steady? It would be more useful (assuming there is any use to Bernanke's statements which is certainly debatable) to know just what he is thinking because those three scenarios are vastly different in terms of economic significance, even though they all project the same 8.2 percent to 8.5 percent unemployment rate prediction. In other words, the Fed's projection, even if accurate, is totally useless, not that anyone should be paying any attention to what he says in the first place. Source: Mish Global Economic Analysis http://globaleconomicanalysis.blogspot.com

Mike Mish Shedlock


Mishs Global Economic Analysis

I nearly always disagree with Bernanke on monetary and fiscal policy. Specifically, the Fed ought not have a monetary policy for the simple reason the Fed should not exist. Indeed, the Bernanke Fed and the Greenspan Fed have both proven beyond a shadow of a doubt they do not know what they are doing, where the economy is headed, or anything else of relevance in setting monetary policy. However, on rare occasions, Bernanke can say a few snippets that seem to make complete sense. For example, Bernanke Says 8.3% Unemployment Understates Labor Weakness. It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work. There are also a lot of people who are either out of the labor force because they dont think they can find work or in part- time jobs. The 8.3 percent no doubt understates the weakness of the labor market in some broad sense, Bernanke said today, while noting that some job indicators are improving. Fed officials last month estimated that the worlds largest economy will grow 2.2 percent to 2.7 percent this year, according to the central tendency estimate, while the unemployment rate will average 8.2 percent to 8.5 percent in the fourth quarter. Disagreements Already: I agree with most of the above analysis, but the more Bernanke or the Fed talks, the quicker a disagreement is bound to arise.The problem above is the Fed's growth projection.The Fed could be right. I just highly doubt it. Let's put it this way, Bernanke has been seriously wrong so many times on economic projections that perhaps by

The views presented by the author (s) do not necessarily represent that of Sundaram Asset Management. The article / posts have been reproduced with permission or from reports available in the public domain in order to provide readers access to a diverse range of views on the economy and asset markets.

Sundaram Asset Management

The Wise Investor February 2012

Sundaram Periodic Table


Annual Returns for Key Asset Classes (1999 - 2010) Ranked in Order of Performance
1999
Russia 246.2 Crude 135.5 Singapore 97.1 Indonesia 92 Korea 90.2 U.S (Nasdaq) 85.6 India 84.7 EM Europe 81.3 BRIC 78.2 Asia 67.7 MSCI EM 63.7 Asia ex-Japan 61.9 Brazil 61.6 Latam 55.5 Honk Kong 54.8 Japan 53.3 Taiwan 51.5 Commodities 46.2 Chile 36.5 U.S (Dow) 25.2 EM Bond 24.2 MSCI World 23.6 Germany 20.1 U.S (S&P 500) 19.5 MSCI Europe 15.3 FTSE 100 14.5 China 9.9 Real Estate 8.9 USD (DXY) 8.2 Gold 0.1 Agriculture -10.4

2000
Commodities 26.9 EM Bond 14.4 Real Estate 13.8 U.S Treasury 13.3 Agriculture 12.1 USD (DXY) 7.5 Gold -5.5 U.S (Dow) -6.2 Crude -9.4 MSCI Europe -9.9 U.S (S&P 500) -10.1 Germany -13.5 MSCI World -14.1 Brazil -14.2 FTSE 100 -16.9 Chile -17 Honk Kong -17.0 Latam -18.4 BRIC -22.8 India -22.8 Singapore -28.6 Russia -30.4 MSCI EM -31.8 China -32.2 Japan -34.9 EM Europe -35.3 Asia ex-Japan -36.3 U.S (Nasdaq) -39.3 Asia -42.5 Taiwan -45.3 Korea -50.3 Indonesia -63.0

2001
Russia 53.2 Korea 46.0 Taiwan 8.8 U.S Treasury 6.9 USD (DXY) 6.6 Asia 4.2 Gold 2.5 EM Bonds 1.4 Real Estate -3.8 Latam -4.3 MSCI EM -4.9 Asia ex-Japan -5.9 Chile -6 U.S (Dow) -7.1 EM Europe -10.5 Indonesia -10.9 U.S (S&P 500) -13 Agriculture -14.1 Crude -14.4 BRIC -17 MSCI World -17.8 FTSE 100 -18.4 U.S (Nasdaq) -21.1 India -21.2 Honk Kong -21.2 MSCI Europe -21.3 Brazil -21.8 Germany 24.6 Singapore -25 China -26 Commodities -31.5 Japan -33.2

2002
Crude 55.4 Commodities 39.0 Indonesia 38.1 Gold 24.7 Agriculture 19.1 Russia 13.9

2003
Brazil 102.9 BRIC 84.2 China 81.1 Chile 79.7 India 73.9 Russia 70.3 Indonesia 70.0 Latam 67.1 EM Europe 65.5 Germany 64.0 MSCI EM 51.6 U.S (Nasdaq) 50.0 Asia 47.1 Asia ex-Japan 42.7 Real Estate 40.7 Taiwan 40.0 Japan 37.7 Singapore 34.2 MSCI Europe 34.1 Korea 32.6 Honk Kong 32.5 MSCI World 30.8 U.S (S&P 500) 26.4 FTSE 100 25.8 EM Bond 25.7 U.S (Dow) 25.3 Gold 19.3 Agriculture 12 Commodities 10.8 U.S Treasury 2.3 Crude 1.6 USD (DXY) -14.7

2004
Indonesia 44.5 Real Estate 38.0 Latam 34.8 Europe 33.4 Crude 32.0 Brazil 30.5 Chile 24.6 MSCI EM 22.4 Honk Kong 20.8 Korea 20.0 Commodities 19.2 Singapore 18.8 MSCI Europe 18.0 Germany 16.8 India 16.5 FTSE 100 15.5 Asia ex-Japan 14.4 BRIC 13.6 MSCI World 12.8 Asia 12.2 Japan 11.8

2005
Russia 69.5 Korea 54.3 Brazil 50 EM Europe 47.2 Crude 46.3 Latam 44.9 BRIC 39.8 Commodities 39.1 India 35.4 MSCI EM 30.3 Asia 23.5 Japan 22.5 Asia ex-Japan 19.3 Chile 18.4 Gold 18 Agriculture 16.4 China 15.9 Real Estate 15.4 USD (DXY) 12.8 Indonesia 12.6 Singapore 10.8 EM Bond 10.7 Germany 10.3 MSCI World 7.6 MSCI Europe 7.2 Honk Kong 4.8 FTSE 100 4.7 Taiwan 3.3 U.S (S&P 500) 3.0 U.S Treasury 2.8 U.S (Nasdaq) 1.4 U.S (Dow) -0.6

2006
China 78.1 Indonesia 69.6 Russia 53.7 BRIC 52.9 India 49 Real Estate 42.4 Singapore 41.9 Brazil 40.5 Latam 39.3 Germany 36.0 EM Europe 33.5 Asia ex-Japan 30.1 MSCI Europe 29.8 Asia 29.8 Agriculture 29.6 MSCI EM 29.2 Chile 26.4 Honk Kong 26.2 FTSE 100 26.1 Gold 23.0 MSCI World 18.0 Taiwan 16.3 U.S (Dow) 16.3 U.S (S&P 500) 13.6 Korea 11.2 EM Bonds 9.9 U.S (Nasdaq) 9.5 Japan 5.9 U.S Treasury 3.1 Crude 2.1 Commodities 0.4 USD (DXY) -8.2

2007
Brazil 75.3 India 71.2 China 63.1 Crude 56.1 BRIC 56.1 Indonesia 50.8 Latam 46.9 Agriculture 41.2 Commodities 40.7 Asia 38.3 Honk Kong 37.5 Asia ex-Japan 37.1 MSCI EM 36.5 Germany 36.4 Gold 31.0 Korea 30.0 EM Europe 27.8 Singapore 23.9 Russia 22.9 Chile 20.8 MSCI Europe 10.6 U.S (Nasdaq) 9.8 U.S Treasury 9.0 MSCI World 7.1 U.S (Dow) 6.4 EM Bonds 6.3 Taiwan 5.4 FTSE 100 5.2 U.S (S&P 500) 3.5 Japan -6.2 Real Estate -7.0 USD (DXY) 8.3

2008
U.S Treasury 14.9 USD (DXY) 6.0 Gold 5.1 EM Bonds -10.9 Agriculture -19.7 Japan -27.7 U.S (Dow) -33.8 Chile -37.3 U.S (S&P 500) -38.5 U.S (Nasdaq) -40.5 MSCI World -42.1 Germany -42.8 Commodities -42.8 Real Estate -47.7 MSCI Europe -47.9 Taiwan -48.7 Singapore - 49.1 U.K -49.5 China -51.9 Latam -52.8 Honk Kong -52.9 Asia ex-Japan -53.6 Asia -54.1 MSCI EM -54.5 Crude -55.5 Korea -55.9 Indonesia -57.6 Brazil -57.6 BRIC -60.3 India -65.1 EM Europe - 68.6 Russia -74.2

2009
Brazil 121.3 Indonesia 120.8 India 100.5 Russia 100.3 Latam 98.1 BRIC 88.8 Crude 84.9 Chile 81.4 EM Europe 81.1 Taiwan 75.1 MSCI EM 74.5 Asia 70.3 Korea 69.4 Asia ex-Japan 68.3 Singapore 68.2 China 58.8 Hong Kong 55.2 Commodities 50.3 U.S (Nasdaq) 43.9 Real Estate 38.3 U.K 35.2 MSCI Europe 30.6 EM Bond 28.2 MSCI World 27.0 Germany 25.8 Gold 25.5 U.S (S&P 500) 23.5 U.S (Dow) 18.8 Japan 16.4 Agriculture 14.7 USD (DXY) - 4.2 U.S Treasury -4.3

2010
Agriculture 44.5 Chile 41.8 Indonesia 31.2 Gold 29.3 Korea 25.3 Crude 22.2 Singapore 20.5 Commodities 20.4 Real Estate 20.4 Hong Kong 19.7 India 19.4 Taiwn 18.3 Russia 17.2 Asia ex-Japan 17.0 U.S. (Nasdaq) 16.9 Asia 16.6 MSCI EM 16.4 EM Europe 14.5 U.S (S&P 500) 12.8 Latam 12.1 EM Bond 12.0 U.S (Dow) 11.0 Japan 9.6 MSCI World 9.6 Germany 7.4 BRIC 7.3 U.S Treasury 5.5 U.K 5.2 Brazil 3.8 China 2.3 USD (DXY) - 1.5 MSCI Europe 0.8

2011
EM Bond 14.5 Crude 14.1 Gold 10.1 U.S Treasury 9.9 U.S (Dow) 5.5 Indonesia 4.0 Commodities 2.1 USD (DXY) 1.5 U.S (S&P 500) 0.0 U.S. (Nasdaq) -1.8 Real Estate -5.8 U.K -6.1 MSCI World -7.6 Japan -12.2 Korea -12.8 MSCI Europe -13.6 Agriculture -14.9 Germany -16.6 Singapore -17.9 Hong Kong -18.4 Asia -19.1 Asia ex-Japan -19.2 China -20.3 MSCI EM 20.4 Russia -20.9 Latam -21.9 Chile -22.1 Taiwan -23.3 BRIC -24.8 Brazil -24.9 EM Europe -25.3 India -38.0

Dec2001-Dec2011
Indonesia 28.7 Gold 18.8 Crude 18.7 Brazil 16.8 Latam 15.2 Chile 14.8 India 14.4 Commodities 14.3 BRIC 13.6 China 12.2 Russia 12.0 Korea 12.0 EM Bond 11.6 MSCI EM 11.2 EM Europe 10.7 Agriculture 10.7 Asia 9.7 Real Estate 9.6 Asia ex-Japan 8.7 U.S Treasury 5.7 Germany 5.3 Hong Kong 5.1 Japan 3.2 Singapore 3.1 U.S. (Nasdaq) 2.9 U.S (Dow) 2.0 MSCI World 1.7 Taiwan 1.4 MSCI Europe 1.4 U.K 1.3 U.S (S&P 500) 0.9 USD (DXY) -3.7

EM Bond 13.1

U.S Treasury 11.5 Korea 7.4 India 5.9 EM Europe 2.9 Real Estate 2.8 Asia -6.2 MSCI EM -8 Japan -9.9 Asia ex-Japan -10.2 USD (DXY) -12.8 Singapore -13.1 BRIC -15.2 China -16.2 FTSE 100 -16.4 U.S (Dow) -16.8 MSCI Europe -20 Honk Kong -20.6 MSCI World -21.1 Chile -21.7 U.S (S&P 500) -23.4 Latam -24.8 Taiwan -25.4 U.S (Nasdaq) -31.5 Germany -33.5 Brazil -33.8

EM Bond 11.7

U.S (S&P 500) 9.0 U.S (Nasdaq) 8.6 Taiwan 6.5 Gold 5.5 Russia 4.1 U.S Treasury 3.5 U.S (Dow) 3.1 China -0.8 USD (DXY) -7 Agriculture -14.0

Data Source: Bloomberg; Analysis: Sundaram Asset Management; Figures are returns in percentage Sundaram Asset Management
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Analysis: S Vidhya The Wise Investor February 2012

Voices
An important point here is that almost no current investors have experienced this more typical 1970s-type market setback. Since the spring, the equity markets have been absolutely bombarded by bad news. This news is complicated and inter-related: how one factor, say, Greek default, or China stumbles, interacts with others such as double- dipping economies and generalized financial crises is just about impossible to know. One can only make more or less blind guesses. Looking out a year, the overall picture seems so much worse than the generally benign forecast of 4% global growth from the IMF. The probabilities of bad outcomes are not as high for us today as they were in early 2008 when, Im pleased to say, as predictors, they looked nearly certain to us. But the possibility of extremely bad and long-lasting problems looks as bad to me now as it ever has. Jeremry Grantham, Founder & CIO, GMO Contrary to common belief, the massive deficits of recent years will actually reduce economic growth in 2012 through a subtle, but nevertheless credible channel consistent with the preponderance of economic research. Studies suggest the government expenditure multiplier is zero to slightly negative. Increased deficit spending does appear to provide a modest lift to GDP for three to five quarters, depending upon the initial conditions of the economy. However, following this small, transitory gain, deficit spending actually retards GDP growth and the economy returns to its starting point at the end of about twelve quarters. Based on our interpretation of these studies, the U.S. economy is now on the backside of the string of record deficits, and this will be a drag in 2012. Despite the massive spending, all that is left is an economy saddled with a higher level of debt. Van Hoisington and Lacy Hunt of Hoisington Investment Since the Total Debt (including individual, corporate, and government) leveled off at around $53 trillion, government debt increased over the past 3 years by over $5 trillion, clearly the decline of private debt was greater than $5 trillion. Private debt declining might seem to be a positive at first blush, but when private debt declines from the excessive levels it reached, the positive turns very negative. And this negative becomes much worse since it followed 2 major manias (dotcom from 1995 to 2000 and housing plus stock market from 2002 to 2007). We believe it signaled a high probability that the U.S. would enter a secular deflationary bear market accompanied by continued deleveraging! We believe that this decline has only just begun. The best way to explain just how significant this private debt decline is that ever since 1945, there has never been a quarterly decline in H/H Debt (not even a dime!!). Charlie Minter, Comstock Funds Is it the beginning of a structural bull market? I doubt it. We are still in a risk-on / risk-off environment where investors blow hot and cold. One of the fallouts of the crisis of the past 3-4 years is a shortening of investors time horizon (stat of the day: did you know that the average holding period for US equities is now 22 seconds!). Long-term investors have become an endangered species and the effect on markets is there for everyone to see. I doubt this will change any time soon but, for now, it is risk on. This is not the time to be fully invested but neither is it the time to be side lined. We are in a nervous market where great opportunities present themselves at regular intervals.We recommend holding 25-50% in cash or cash like instruments (depending on your risk profile), which can be deployed at short notice when those opportunities arise. Niels Jensen, Absolute Return Partners The best line item on corporate balance sheets today is typically "Cash and Equivalents." But while the amount of cash and cashequivalents on U.S. (non-financial) corporate balance sheets has increased significantly, particularly relative to the cash-strapped lows of 2009, corporate cash is certainly nowhere near historical highs relative to debt. The bottom line is that at an aggregate level, corporate balance sheets look reasonable, but are certainly not "stronger than they have ever been in history." Cash levels are elevated, but this is at best a second-order factor (with excess cash representing only a few percent of total assets), while debt remains near record levels relative to total assets and net worth. Balance sheet risks should be evaluated on a business-bybusiness level, rather than accepting the blanket notion that cash levels are so high that nobody needs to worry about corporate credit risk. John Hussman, President Hussman Funds
Source: Reports available on the website of each fund house The views presented by the author (s) do not necessarily represent that of Sundaram Asset Management. The article / posts have been reproduced with permission or from reports available in the public domain in order to provide readers access to a diverse range of views on the economy and asset markets. Mutual fund investments are subject to market risks. Please read the Statement of Additional Information of Sundaram Mutual Fund and Scheme Information Document of Schemes of Sundaram Mutual Fund, which are available at www.sundarammutual.com, carefully before taking an investment decision. Risk Factors: All mutual funds and securities investments are subject to market risks. There can be no assurance or guarantee that a scheme's objective will be achieved. NAV may rise or decline, depending on factors and forces affecting the securities market. There is risk of capital loss and uncertainty of dividend distribution. General Disclaimer: The Wise Investor, a monthly publication of Sundaram Asset Management, is for information purposes only. The Wise Investor is not and should not be construed as a prospectus, scheme information document, offer document, offer solicitation for an investment and investment advice, to name a few. Information in this document has been obtained from sources that are reliable in the opinion of Sundaram Asset Management. Opinions expressed by authors do not necessarily represent that of Sundaram Mutual Fund or Sundaram Asset Management or Sundaram Trustee Company or Sundaram Finance, the sponsor. Statutory: Mutual Fund Sundaram Mutual Fund is a trust under the Indian Trusts Act, 1882 Sponsor: (Liability is limited to Rs 1 lakh): Sundaram Finance Limited; Investment Manager: Sundaram Asset Management Company Limited. Trustee: Sundaram Trustee Company Limited. Past performance of Sponsors/Asset Management Company/Fund does not indicate or guarantee future performance.

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The Wise Investor February 2012

The Wise Investor


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Investment Quiz

1 Who was Chairman of the Federal Reserve (U.S) before Ben Bernanke? 2 What percentage of an equity funds portfolio can be invested in unlisted stocks? 3 Who is the author of Thinking, Fast and Slow? 4 Who is the longest serving fund manager of an equity fund in India? 5 What was the currency of Italy before it embraced the Euro? Answers for January 2012 Quiz 1 What used to be currency of Spain before it Hyman P Minsky embraced the Euro? 4 Which was the first fund in India to offer exposure Spanish Peseta to equity and gold? 2 What is marked-to-market in a debt fund portfolio? UTI Wealth Builder Fund This refers to securities in the portfolio that 5 Who was the CEO of the first private sector mutual are valued on a fair basis at current market fund in India? The fund house was Kothari Pioneer prices (now part of Franklin Templeton)? 3 Who is the author of Stabilising an Unstable Economy? Vivek Reddy
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The Wise Investor February 2012

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