EFTA01451008.pdf

11 December 2013 GEM Equity Strategy Outlook 2014 Figure 47: Indian industrials - FCF/Sales. 12m rolling Figure 48: Indian industrials - Debt/Equity, 12m rolling average (%) 'average WO 10% es% 5% 0% -5% 1W% CO% co% I .25% -.%)% SA 1 -.1911 40% 8 8 3 3 8 8 'a 'a 8 8 8 8 0 0— . el el el 888888888668888e IT' 5 8 5 8 8 5 B 5 8 3 8 5 8 5 B 5 8 5 8 8 5 3 5 8 5 8 3 8 5 8 5 8 8 5 8 5 8 3 8 5 8 Scarce Deo:We Se4( 8fccenlvegi rea"Ve IP Sane' Ottcc, Sint docrntery Awn:* LP For the time being, investors seem happy to focus on two positives. First is the extent to which the fall in the value of the Rupee has stimulated exports (Figure 49), thereby taking some of the pressure off the current account. Second is the increasingly widespread perception that the BJP will emerge from the election in May as the biggest party and with a clear mandate to undertake reforms with the backing of their regional allies. We do not really have a strong view on the Indian election at this point given that roughly 70% of the electorate is rurally-based and that opinion polls tend not to be so reliable, while the so-called third front also appears to rapidly gaining popularity. We suspect however, that even in the event of the BJP managing to assemble a credible coalition, that the passage and implementation of reform will not be so straightforward, as has been demonstrated with the mixed reception given the new land acquisition law. Meanwhile, some of the structural financial issues will continue to have a negative effect on the economy for some time. The biggest potential for a positive surprise in 2014 in our view would be a fall in the oil price which is a key variable for both the Indian economy and equity markets, via the twin fiscal and current account deficits and as a literal and metaphorical lubricant for economic reform (Figure 50). Figure 49: YoN1 Indian exports growth (%) - Double digit ifigthe 50: Total returns of Indian equities versus oil price growth for last four consecutive quarters - YoY growth, both USD riot Yo 1 Expo15 rat 32n 150 i) 22 10.0 20 5.0 1 15 1 00 10 .50 0 -10.0 -15 0 e. a ;I; 0 LILLL-I3 Fet.13 hued 3 rip..13 lAmy.13 Jun.13 A$13 A.13 Sm>1.2 00-13 WWII ol pnc« trn1pl —WC, Inds Sant Danes-* fAMLay Salt aruLAAlaLet Sava &urea aktothdr Sink Soconborp Aura LP Page 30 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 107106 CONFIDENTIAL SDNY_GM_00253290 EFTA01451008