India Index Products, Place Of Indian Indexes In Portfolio

Slide 1: What place do emerging market Asian Indices have in a portfolio? An Indian perspective by Suresh Narayan November 27, 2007

Slide 2: Structure of presentation • Emerging markets – what are they? • The India story - Attraction for investors : GDP growth, stock market returns • Asset allocation strategies • How to take exposure to the country – derivatives / ETFs / structured products India Index Services & Products Ltd. 2

Slide 3: Emerging markets “Historical underpinnings of a country’s classification as an emerging market are generally gross national income (GNI), as defined by World Bank, and the size and depth of each equity market in relation to gross domestic product (GDP). Emerging markets are thus traditionally those that either have a low GNI or are small and far less liquid and investable, meaning stocks in those markets are less available to foreign investors” S&P Viewpoint India Index Services & Products Ltd. 3

Slide 4: Emerging markets (contd.) • Characterised by high volatility • Potential for higher rewards and greater portfolio diversification in compensation for increased risk • Delivered 30% returns over last 5 years as against 15% for world markets Benchmarks are still heavily weighted to developed markets – emerging markets are only 10% of MSCI World index despite the fact that they are 30% of world GDP and 55% of world growth India Index Services & Products Ltd. 4

Slide 5: The India story • Growth – economic growth at 6% between 1980 and 2002, 9% growth since 2002 • Economic reforms initiated in early 1980s and reinforced in 1990s – acted as a solid base • GDP growth at 9.3% during the first quarter of 2007-08 (as compared to 5.2% growth in world economies) • Inflation based on Wholesale Price Index (WPI) – 3% India Index Services & Products Ltd. 5

Slide 6: The India story (contd.) • Stock market returns – S&P CNX Nifty delivered price returns of 38 % in 2007 and 40 % in 2006. • Benefits of demographics – huge consumer base, young and vibrant population, reservoir of intellectual capital • Foreign exchange reserves – US $ 260 billion • FII Investments – US $ 15 billion during April- September 2007 India Index Services & Products Ltd. 6

Slide 7: Asset allocation strategies Why India ? • Current scenario in stock markets – two major stock exchanges • Single order book, complete transparency and improved liquidity • T + 2 rolling settlement • Clearing corporation and depository • NSE – ranked No. 1 in single stock futures in 2006 (number of contracts) and 4th in index futures worldwide India Index Services & Products Ltd. 7

Slide 8: Why India (contd.) • Tremendous opportunity in stock markets – only 5% of household savings currently invests in stock markets ; pension funds yet to come in • Valuations are still attractive – P/E of 24 for S&P CNX Nifty • Very liquid market , retail participation is 63%, institutional participation 12% • Expectations of higher allocations in the coming years • MCAP of NSE listed securities – 1.45 trillion USD India Index Services & Products Ltd. 8

Slide 9: Place for Indian indices in an investors’ portfolio • 3 indices – MSCI India, BSE Sensex and S&P CNX Nifty • S&P CNX Nifty – benchmark for the Indian market – 50-stock well-diversified investable index covering 21 sectors of the economy – Represents about 58% MCAP of the universe – Highly liquid India Index Services & Products Ltd. 9

Slide 10: How to take exposure to the country / region ? • Foreign Direct Investment (FDI) • Foreign Institutional Investor / Sub- account route to invest through stock exchanges – cash and derivative segment • ETF route – ETFs on Indian indices are listed in Europe and Asia (Deutsche Bank & Lyxor) • Structured products – with specific index or basket of indices India Index Services & Products Ltd. 10

Slide 11: Measures to facilitate further investment • Approval by the regulator for new derivative products • Regulator to consider new types of investors to be allowed under FII / Sub- account route • Securities lending / borrowing program India Index Services & Products Ltd. 11

Slide 12: References • Macroeconomic and Monetary Developments – Mid-term review 2007-08, Reserve Bank of India • Standard & Poor’s Emerging Markets Database India Index Services & Products Ltd. 12