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Indian Equity Fundamentals

With budget not providing any ammunition to bulls, the indices continued to slip in post
budget period during March. With forthcoming results not likely to offer any positive
surprise, bulls can trigger a Profit booking. So one can worry about more pain in the
markets, in the coming weeks. This suggests that for many months, we may not see any
new highs, while moving towards newer recent lows is indeed a possibility. The coming
months could be testing time for investors as well as traders.

The government is panicking by higher inflationary trend in the economy and is taking
some unusual measures to keep prices of commodities in check. Till such measures don't
indicate a reversal of control / license raj, the market may react negatively and in such
case restoring the investors' confidence could become a challenge for Govt. When
markets are good everything looks good for the government - growth in revenues,
investments in infrastructure and capex plans across sectors. But one small mistake on the
reforms front can kill the golden goose and lack buoyancy in capital markets, which can
be dearer to the economy. We hope the government would not take any step which could
adversely affect investor sentiments.

Meanwhile with recent fall in newly listed company stocks IPO (Initial Public Offer)
listings, wherein majority of new listings (almost 60%) are now quoting at discount; the
near term outlook for IPO market looks bleak and one may expect a slowdown in new
IPO’s plus moderating greed of managements looking to go public. But this should be
taken as positive development. On March 23rd, 2007, Cabinet cleared the deck to allow
74% FDI (Foreign Direct Investment) in Telecom business. In addition, FM has asked
RBI to facilitate the use of Forex Reserves for Infrastructure Development. SEBI allowed
short selling by FIs (Foreign Institutions) as proposed in latest budget. It also plans to
make IPO grading mandatory, to improve the quality of IPOs.

Peoples Bank of China, raised the interest rates by 27 bps in mid March ’07; while BOJ
(Bank of Japan) kept rates unchanged in March on expected lines. Similarly the US Fed
also kept rates unchanged in March ’07. Emerging Markets saw a huge withdrawal
during the month, leading to sharp losses in emerging markets during mid month.
With the fear of US slowdown, following the reports of a lower GDP growth for US
economy in current year at 2.2% compared to 3.3% last year, is likely to have salutary
impact on OIL and some other key commodities. But a slowdown in US housing sales
and housing prices indicates broad soft trend in US economy.

Mid March, oil prices moved up sharply touching US64$, following UNSC tightening on
Iran's nuclear program. This could be a dampner for emerging economies like India and
particularly, for oil marketing companies in India. Rising oil prices are always a big
concern for the Indian economy. More than anything else, they become a big drain on
government finances due to subsidy burden rising sharply.

Meanwhile on the positive side, Govt. is likely to extend the tax benefits to the power
sector till 2017, against present deadline of 2010. This is desirable of necessary, looking
to need of significant investments on sustained basis, to achieve the growth targets in the
Power sector.

India is now having more billionaires in Forbes than any other country in Asia(As by
Forbes); which is really a feather in cap and indicates the potential of Indian business.

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