MARCH 2011

MARCH 2011

Predicting earthquakes is very easy; even I can do it! Why; because there are hundreds of them every day. I am always correct when I say there will be an earthquake today.So; the hard part is not the simple prediction of an earthquake; it is stating how strong or big it will be and more importantly the location and timing.We all know that California will fall into the Pacific Ocean, we just dont know when. Two earthquakes that have been predicted for years have hit markets and the responses to them are very different. One sits on a major tectonic fault line. In Japan at least 25,000 people are dead or missing after the biggest quake to hit there in almost 100 years that is predicted to have caused close to US$300 billion of damages and will almost certainly drive the country into a recession. Initially the global equity market sold off but then almost immediately, other than in Japan, shrugged their collective shoulders and moved back to or above where they had started. Why; because the Bank of Japan provided almost infinite liquidity to the markets and because this was a domestic catastrophe that had almost no economic impact on the rest of the world. One sits on a major economic asset. In the Middle East the popular uprising against totalitarian and dictatorial regimes continues apace. It started in Tunisia and moved on to Egypt, we then saw it erupt in Bahrain and Yemen and slide into Syria and international markets, by and large, ignored the issues because it did not impact on their economic interests. Come the day and Libya explodes, the world wakes up and decries a dictator and looks to protect the democratic rights of its people, why, the rest of the worlds economic interests are now at risk. Oil prices are up about 20% since the unrest started and up over 70% from the lows of last year. This damages the economic prospects of all consumers and India is one of the biggest of them. So I correctly predict that there will be more earthquakes in the financial markets, including India over the coming months, European sovereign debt, American banks, higher inflation, social unrest in Asia, but.!

Market Performance and yield level changes

Review of the Economy
A number of recent indicators suggest that economic momentum has slowed. Industrial output growth fell from an average of 13.9% YOY in H1 2010 to 7.6% in H2 2010 and further to 3.7% in January. Real GDP growth also moderated from 8.9% in Q1 2010 to 8.2% in Q4 2010, mainly due to weakness in the manufacturing sector. In its mid-quarter policy review, the Reserve Bank of India (RBI) was more hawkish as it is felt that underlying inflationary pressures have accentuated. They raised key policy rates by 0.25%, making it the eighth increase since the start of 2010. The RBI also revised its inflation forecast sharply upward, it is now expected to reach 8% by this March-endthis is up from the 7% forecast in January and a much lower 5.50% that was their forecast in November last year. The Wholesale Price Index (WPI) was 8.30% versus 8.23% previously, accelerating over Januarys inflation and above analysts expectations. Primary articles inflation moderated as expected, but the rise in non-food manufacturing inflation was higher than expected (Chart 2). Some domestic economic data points improved during the month. The current account deficit expectation was lowered to 2.50% of GDP (Chart 1) as exports grew more than 49% in the month of Feb-11, with overall exports for the 11-month period in FY11 crossing $200 billion (total FY10 figure was $178 billion); the shrinking trade deficit contained the current account deficit to US$ 9.7bn in Q3FY11. Secondly, the central Governments advance tax collection registered a growth of 25%, improving the outlook for corporate performance for the quarter ending Mar-11. Lastly, the Index of Industrial Production (IIP) grew more than expected to 3.70%, reinforcing expectation of the central bank continuing its policy of raising interest rates to fight inflation. On the global front, European industrial production increased in January for the fourth month as companies in Germany (the regions largest economy) boosted output to meet surging export orders. Industrial Production in the Euro-zone rose 6.60% YOY, a tad higher than analyst expectations. Moodys downgraded Spain to Aa2 from Aa1, warning of further cuts to the countrys credit ratings. The US unemployment rate unexpectedly fell to a two-year low of 8.8% in March as employers created more jobs than forecast, adding to evidence that the labour market recovery is gaining traction. The US GDP figure was also revised upward to 3.1%, led by a jump in consumer spending. Chinas central bank ordered its banks to set aside more cash for the third time this year (and the ninth time since 2010), judging that inflation remains a big threat to the worlds second largest economy.

Indices BSE Sensex BSE 100 BSE Mid Cap BSE Small Cap MSCI Europe # MSCI World # MSCI Emerging Market # 3 month Yield * 10 y Gov Yield * 10 y AAA Yield*

MonthEnd Level 19445.2 10095.7 6873.4 8175.9 95.5 1334.9 1170.9 7.31% 7.99% 9.15%

1-Month Change 9.10% 9.03% 7.85% 4.59% -2.45% -2.73% 4.10% +0.17% -0.03% -0.02%

3-Month Change -5.19% -5.43% -11.91% -15.45% 5.99% 4.01% 1.43% +0.13% +0.07% +0.19%

6-Month Change -3.11% -5.00% -14.98% -20.20% 9.58% 12.26% 7.95% +1.16% +0.15% +0.48%

1-Year Change 10.94% 8.55% 0.99% -3.78% 8.61% 10.30% 14.96% +3.04% +0.16% +0.36%

* As yields rise (fall), bond prices fall (rise); the longer the maturity of the bond the larger the change in price for a given change in interest rate. # Changes in the index values are based in INR.

Review of Markets Equity market

March saw India outperforming the global indices for the first time in 2011 as it emerged as the best-performing market, up 9% (although Korea beats India on a dollar-adjusted basis). One of the reasons for the improving trend was that during the month, FIIs bought roughly $1,556 mil as they turned into buyers for the first time in 2011; also, domestic mutual funds remained buyers for the fourth consecutive monthof approximately $86 mil.whereas insurance companies turned sellers of over $100 mil. The BSE Sensex bounced back and touched a two-month high in March after touching an eight-month low in February. The mid-cap and small-cap indices underperformed large caps for the fifth consecutive month. The BSE Midcap and BSE Small Cap indices underperformed the BSE-100 by about 1.25% and 4.5% respectively. Among sectors, the outperforming sectors were domestic rate-sensitive sectors such as auto, banks and real estaterising between 12% and 17%; defensive sectors such as FMCG and healthcare underperformed for the second consecutive monthrising between 4% and 5%. However, Indias ranking is still among the bottom five emerging markets on a year-to-date or 6M basis, and it continues to show an underperformance compared to developed markets (Chart 3).

Chart 1: Balance of Payments

Fixed Interest Market

The returns in the Indian bond markets remained flat with the benchmark 10-year Govt. bond yield moving down 0.03% and ending the month at 7.99% thanks

MARCH 2011

Chart 2: Inflation and Interest Rates

to improved liquidity in the system (overnight borrowings during the month down to approximately Rs. 60,000 crore from close to Rs. 100,000 previously). Government announced its borrowing calendar for FY12 with 60% of the budgeted gross borrowing slated for the first half of FY12, which means that debt issuance between April and September will be around 2.5 trillion rupees billion). were The total their ($56

The long-dated corporate bond market moved in line with the Govt. market with the spread of 10-year AAA bonds staying at 1.16%. Medium-term corporate bonds slightly outperformed both Govt. bonds and long-term corporate bonds. In the shorter end of the market, 1-year CD rates were at 9.80% vs. 10.17% in the previous month.

Outlook for the Economy

The OECDs composite leading index for India has moved below its long-term trend and this suggests that the economy is in a slowdown phase. However, two major tailwinds export revival and an improving fiscal conditionin the economy suggest that this slowdown is transitory and that growth should rebound as policy traction improves. Inflation continues to haunt the economy with recent numbers suggesting an uptick in manufacturing inflation, and food inflation being a structural issue.

Outlook for Markets We are slightly positive on the Equity market

We are positive on the equity market. The Government is expected to table reform bills in the next parliamentary session and state elections are expected to be behind us in a couple of months. Markets will keenly watch the upcoming corporate results and the developing profits expectations for this fiscal, these events are expected to provide triggers to the market. Strong inflows have been witnessed across emerging markets in recent weeks, possibly suggesting reversion of flows into emerging markets, after the tactical shift towards developed markets witnessed in the past few months. The participation breadth of Indian midcaps has also improved of late. The key concern for the Indian equity market going forward remains the rising crude levels, as well as a possibility of reversal of FII flows, particularly the volatile ETF flows.

Chart 3: Performance of Equity Indices

We are neutral on the Fixed Income market

A lower-than-expected first-half borrowing figure of 60% of the fiscal year total is likely to put less upward pressure on bond yields and is expected to leave some scope for private sector borrowings. The liquidity situation is expected to improve further in April as funds mopped up in advance tax collection flow back into the money markets. However, inflation continues to remain at elevated levels and the central bank is expected to respond through 3 more interest rate hikes in the coming months. Against this backdrop, we have revised our portfolio stance to neutral vis-a-vis the benchmarks. We will look to take advantage of market volatility through active duration management.

The past Charts of Equity, Fixed Interest returns and Macro Economic Data Points
Chart 1 shows Balance of Payments and Chart 2 highlights Inflation and Interest Rates. Chart 3 and Chart 4 depict the equity and debt market performance over the past year.

Chart 4: Performance of Debt Indices

MARCH 2011

As on 31-3-2011
Returns in % (Less Than or Equal to 1yr : Absolute Returns, greater than 1 year : CAGR Funds Inception Date Benchmark 1 Yr Fund Equity Equity Pension 16/2/2006 3/5/2008 BSE 100 6.25 7.64 BM 8.55 8.55 3 Yrs Fund 6.15 8.24 BM 7.03 7.03 5 Yrs Fund 9.19 NA BM 11.32 NA Since Inception Fund 11.31 5.83 BM 13.25 4.67

Prime Equity

1/1/2010

8.36

8.55

NA

NA

NA

NA

5.07

7.46

Prime Equity Pension

1/1/2010

8.26

8.55

NA

NA

NA

NA

4.41

7.46

Balanced

11/2/2004

Crisil Bond Fund Index(70%) and BSE 100(30%) Crisil Bond Fund Index(85%) and BSE 100(15%) Crisil Bond Fund Index(50%) and BSE 100(50%) Constant Maturity 5 year Gsec (50%) and BSE 100(50%) NA

5.76

6.11

6.03

6.26

7.30

7.56

9.99

10.11

Secure

11/2/2004

5.45

5.59

7.58

6.10

8.05

6.75

8.73

7.84

Growth Active Asset Allocation Guaranteed Growth Market Shield

11/2/2004

5.65

6.81

6.24

6.48

8.16

8.63

12.13

13.12

18/1/2011

NA

NA

NA

NA

NA

NA

2.03

1.82

30/1/2008

5.55

NA

6.10

NA

NA

NA

5.96

NA

22/12/2010

NA

NA

NA

NA

NA

NA

NA

-2.03

NA

Debt

11/2/2004

Crisil Bond Fund Index.

6.50

5.06

8.93

5.93

7.86

5.94

7.07

5.58

Debt Pension Liquid Pension

3/5/2008 3/5/2008 Crisil Liquid Fund Index.

6.81 6.00

5.06 6.21

9.02 7.13

5.93 6.21

NA NA

NA NA

8.69 7.18

5.75 6.29

Preserver

1/1/2010

Constant Maturity 5 year Gsec

7.66

5.42

NA

NA

NA

NA

11.91

4.82

Preserver Pension

1/1/2010

7.76

5.42

NA

NA

NA

NA

12.35

4.82

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Fund Profile

The fund seeks to generate income through an investment mix of high quality bonds and money market instruments.

Movement of NAV

Launch Date: Nov.2, 2004 NAV: Rs.15.50 AUM: Rs.755m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 1.07% 1.70% 2.68% 6.50% 7.07% Index 0.85% 1.39% 2.40% 5.06% 5.58%

Money market

Gsec

Debt Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is the Crisil Bond Fund Index.

Fund Profile
The fund seeks to achieve long term moderate capital growth through an investment mix of upto 20% equity and the balance in high quality bonds and money market instruments.

Movement of NAV

Launch Date: Nov.2, 2004 NAV: Rs.17.11 AUM: Rs. 306m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 2.06% 0.18% 1.00% 5.45% 8.73% Index 2.08% 0.37% 1.29% 5.59% 7.84%

Money market Gsec Equity

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is a composite of Crisil Bond Fund Index(85%) and BSE 100(15%)

Secure Fund

MARCH 2011

Fund Profile

The fund seeks to achieve long term capital growth through an investment mix of upto 40% equity and the balance in high quality bonds and money market instruments.

Movement of NAV

Launch Date: Nov.2, 2004 NAV: Rs.18.40 AUM: Rs. 1048m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Absolute return 3.22% -1.15% -0.51% 5.76% 9.99% Index 3.30% -0.65% 0.18% 6.11% 10.11%

Money market Gsec Equity

Since inception

Balanced Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is a composite of Crisil Bond Fund Index(70%) and BSE 100(30%)

Fund Profile
The fund seeks to achieve long term accelerated capital growth through an investment mix of upto 60% equity and the balance in high quality bonds and money market instruments.

Movement of NAV

Launch Date: Nov.2, 2004 NAV: Rs.20.83 AUM: Rs. 15734m

Portfolio Chart
Equity

Return
Period One month Three months Six months One year Absolute return 4.66% -2.75% -2.39% 5.65% 12.13% Index 4.94% -2.02% -1.30% 6.81% 13.12%

Money market

Gsec

Since inception

Corporate Debt

Growth Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is a composite of Crisil Bond Fund Index(50%) and BSE 100(50%)

MARCH 2011

The fund seeks to achieve long term moderate capital growth while meeting guarantees provided, through an investment mix of upto 40% equity and the balance in high quality bonds and money market instruments.

Fund Profile

Movement of NAV

Launch Date: Jan. 30, 2008 NAV: Rs.12.00 AUM: Rs. 638m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 1.64% -0.14% 0.07% 5.55% 5.96%

Money market

Equity

Guaranteed Growth Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges.

Fund Profile
The fund seeks to achieve long term accelerated capital growth through a portfolio of equities.

Movement of NAV

Launch Date: Feb. 16, 2006 NAV: Rs.17.30 AUM: Rs. 14707m

Portfolio Chart
Equity

Return
Period One month Three months Six months One year Since inception Absolute return 8.17% -6.07% -6.05% 6.25% 11.31% Index 9.03% -5.43% -5.00% 8.55% 13.25%

Corporate Debt

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is BSE 100

Equity Fund

MARCH 2011

Fund Profile

The Fund is a simple two-asset product that invests in risk-free money-market assets as well as in equity assets.The investor benefits through continuous participation in equity market returns and simultaneous downside protection to the extent of 80% of highest-attained NAV

Return
Period One month Three months Six months One year Since inception Absolute return 3.67% -3.07%

Launch Date: December 22, 2010 NAV: Rs.9.81 AUM: Rs. 167m

Portfolio Chart
Corporate Debt Money Market Gsec

-2.03%

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges.

Equity

Market Shield Fund

Fund Profile
The fund seeks provide long term capital appreciation in a risk controlled manner by making clear and dynamic asset allocation choices as between Equities and Bonds.

Return
Period One month Three months Six months One year Since inception 2.03% 1.82% Absolute return 4.51% Index 4.88%

Launch Date: January 18, 2011 NAV: Rs.10.22 AUM: Rs. 27m

Portfolio Chart
Equity

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is a composite of Constant Maturity 5 Year Gsec(50%) and BSE-100(50%)

Money market

Corporate Debt

Active Asset AllocationFund

MARCH 2011

Fund Profile

The fund seeks to achieve long term accelerated capital growth through a portfolio of equities.

Movement of NAV

Launch Date: Jan. 4, 2010 NAV: Rs.10.66 AUM: Rs. 453m

Portfolio Chart
Equity

Return
Period One month Three months Six months One year Since inception Absolute return 8.50% -5.78% -5.38% 8.36% 5.07% Index 9.03% -5.43% -5.00% 8.55% 7.46%

Prime Equity Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is BSE 100

Fund Profile
The fund seeks to generate income by investing in a diversified portfolio of debt and money market instruments of varying maturities.

Movement of NAV

Launch Date: Jan. 4, 2010 NAV: Rs.11.50 AUM: Rs. 307m

Portfolio Chart
Coporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 1.45% 2.01% 3.08% 7.66% 11.91% Index 0.74% 1.41% 2.46% 5.42% 4.82%

Money market

Gsec

Preserver Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is Constant Maturity 5 Year Gsec

MARCH 2011

Fund Profile

The fund seeks to achieve long term accelerated capital growth through a portfolio of equities.

Movement of NAV

Launch Date: Jan. 4, 2010 NAV: Rs.10.58 AUM: Rs. 308m

Portfolio Chart
Equity

Return
Period One month Three months Six months One year Since inception Absolute return 8.46% -5.92% -5.49% 8.26% 4.41% Index 9.03% -5.43% -5.00% 8.55% 7.46%

Money market

Pension Prime Equity Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is BSE 100

Fund Profile
The fund seeks to generate income by investing in a diversified portfolio of debt and money market instruments of varying maturities.

Movement of NAV

Launch Date: Jan. 4, 2010 NAV: Rs.11.56 AUM: Rs. 166m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 1.35% 1.86% 2.89% 7.76% 12.35% Index 0.74% 1.41% 2.46% 5.42% 4.82%

Gsec

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is Constant Maturity 5 Year Gsec

Pension Preserver Fund

MARCH 2011

Fund Profile

The fund seeks to provide reasonable returns while providing a high level of liquidity and low risk by investing in money market securities.

Movement of NAV

Launch Date: March.5, 2008 NAV: Rs.12.38 AUM: Rs. 52m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 0.64% 1.76% 3.28% 6.00% 7.18% Index 0.71% 1.96% 3.71% 6.21% 6.29%

Money market

Pension Liquid Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is the Crisil Liquid Fund Index.

Fund Profile

The fund seeks to generate income through an investment mix of high quality bonds and money market instruments.

Movement of NAV

Launch Date: March 5, 2008 NAV: Rs.12.92 AUM: Rs. 524m

Portfolio Chart
Corporate Debt

Return
Period One month Three months Six months One year Since inception Absolute return 1.26% 1.92% 3.08% 6.81% 8.69% Index 0.85% 1.39% 2.40% 5.06% 5.75%

Money market

Gsec

Pension Debt Fund

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is the Crisil Bond Fund Index.

MARCH 2011

The fund seeks to achieve long term accelerated capital growth through a portfolio of equities.

Fund Profile

Movement of NAV

Launch Date: March 5, 2008 NAV: Rs.11.86 AUM: Rs. 1376m

Portfolio Chart
Equity

Return
Period One month Three months Six months One year Since inception Absolute return 8.24% -5.68% -5.70% 7.64% 5.83% Index 9.03% -5.43% -5.00% 8.55% 4.67%

Corporate Debt

Money Market

Returns less than 1 year are absolute, and greater than 1 year are compounded annualised. They are net of charges. Index is BSE 100

Pension Equity Fund