MonthlyInvestmentUpdate: Volume4,Issue11 February,2012

UNITLINKEDPRODUCTSFROMSBILIFEINSURANCECO.LTD. 2008 INVESTMENTOBJECTIVESANDVISION

(A) InvestmentObjectives:
The investment objectives of the Company are to maximize the risk adjusted returns and ensure reasonable liquidity at all times. Management of the investment portfolio is a crucial function as investment risk and returns, inter alia, determine the ability of the Company to competitively price its products, ensure solvency at all times and earn the expected profitability. The investment policy outlined in this document seeks to set the direction and philosophy for the Companys investment operations. The Policy outlined below conforms to the IRDA Investment Regulations and the Insurance Act. The Policy covers investment parameters, exposure norms and other relevant factors that will assist in taking prudent investment decisions. The Policy framework also takes into account asset liability management, market risks, portfolio duration, liquidity considerations, and credit risk. To summarize the investment policy aims to achieve the following Investment Objectives:

a) To acquire and maintain quality assets that will meet the liabilities accepted by the Company; b) To be able to meet the reasonable expectations of the policyholders taking into account the safety of their funds with optimum Return; c) To adhere to all Regulatory provisions;

d) To conduct all the related activities in a cost effective and efficient manner; and e) To achieve performance in line with benchmarks identified for the different investment portfolios. The Company has also defined the Investment Objectives for each Fund separately, on the basis of aforesaid broader Investment objectives.

(B) InvestmentVision:
To invest the funds on the prudent principles of Safety, Liquidity & Returns, with an overall vision of meeting reasonable expectations of policy holders.
Source:SBILifeInvestmentPolicy

February,2012

MajorEconomicIndicators

February,2012

PrimaryKeyRates

DataSources NSE BSE RBI FIMMDA Bloomberg&Reuters

DEBTMARKETREVIEWANDOUTLOOK
MARKETREVIEW
Yields headed higher during the month of February as the RBI paused on the regularity of open market purchases.Liquiditytightnesspersistedandthreatenedtoapproachthe2trillionlevelandthiswasreflectedin the1yearCD(CertificateofDeposits)levels.ThepostponementofratecutshasalsokeptTbillyieldshigher.

February,2012

Keyratemovementsduringthemonthareasunder:
Instrument Feb '12 8.24% 8.59% 9.38% 9.32% 9.22% 8.51% 9.06% 10.70% 86 107 $ Jan '12 8.27% 8.54% 9.39% 9.35% 9.20% 8.47% 8.73% 10.0% 93 97 $ Mar 11 7.98% 8.33% 9.33% 9.20% 9.25% 7.64% 7.31% 9.80% 127 bps 115$ Change (MOM) -0.36% 0.59% -0.11% -0.32% 0.22% 0.47% 3.78% 7.00% -7 Bps 10.0 $ Change (YTD) 3.26% 3.12% 0.54% 1.30% -0.32% 11.39% 23.94% 9.18% (-) 41Bps (-) 8$

10YrGsec 30YrGsec 3YrAAABond 5YrAAABond 10YrAAABond 364DaysTbill 91DaysTbill 1YrCertificateofDeposit Creditspreads Crude$/barrel

(Source:Bloomberg,Reuters&RBI)

MacroIndicators
Index of Industrial output grew at 1.8% y/y in December against the stupendous figure of 5.9% in the previousmonth.Theseverdipinminingcategoryledtothedownfall. TheDecemberinflationcameinat6.55%endedupbeingamultiyearlow.Thefallinfoodinflationto 3.4%and2.9%inconsecutivemonthsbodeswellfortheWPInumber. Credit growth till the end of February reached 15.6% y/y, while deposits growth has started dipping andnowstandsat14.3%y/y. Manufacturing PMI for India fell marginally to 56.6 for the month of February from the earlier figure of 57.5. However this was still an impressive performance and means that that industrial activity wouldbefarfromsluggishgoingforward.
Source: Bloomberg, Reuters & RBI

Global News: US economic data steady; Euro area disappoints as Greece tries to pick up theshambles;RBAholdsratessteady
The ADP (Automatic Data Processing) employment data which is collected by a private agency came in at a positive surprise of 217000 job additions versus last months 170000 suggesting that non farm payroll figures could be promisingly good. The other positive bit of data from the US was that the ISM (Institute of Supply Management)manufacturingPMI(PurchasingManagersIndex)whichstillwasholdingabove50althoughit

February,2012

has fallen recently from 54.1 to 52.4. Eurozone is yet to show signs of improvement as PMI continue to registeratsub50levelandeventheGDPisstuckatalowly0.7%inthelatestquarter.Theonlybeaconoflight is the fact that the Euro leaders have proposed a bond swap deal whereby bondholders could exchange current Greek govt. debt for new issuances at a value worth half its face value. Reserve Bank of Australia has pausedduringitsmonetarypolicymeetingandthesameisexpectedfromotherAsiancentralbankswhilethe otherbigdampenerfromAsiahasbeenthedowngradingofChinasGDPto7.8%in2012byMr.HuJuntao Source: Bloomberg, Reuters

OUTLOOK
The month of February saw the bond yields hardening a little after the frequency and quantum of OMO buybacksbytheRBIstartedtolessen.TheRBIhassofarcrossedmorethan1trillionRupeesworthofGsecsin the OMO (Open Market Operation) window, and looks like there would be incrementally very few or no more of such buybacks. However the other positive factors driving the bond markets would be the low inflationary trendexpectedinto2012,andthedovishpolicystanceofRBI.WedontseeaReporatecutonMarch15th,but the strain in systemic liquidity would entail a 50 bps CRR (Cash Reserve Ratio) cuts atleast during this policy review. The quantum of rate cuts during 2012 could be as high as 100 bps and this could shift the entire yield curvelower.OnMarch16thweexpecttheFMtodeliverapromisingbudgetexhibitingfiscaldisciplineandthus expectFY13fiscaldeficittobearound5.1%ofGDP.Goingbythesenumbersthegrossborrowingcouldbein the Rs.5.35.5 trillion rangeand the markets would take this number positively. Hence we continue to remain moderately bullish on Indiansovereign bonds. Major risks to our view will be lack of fiscal consolidation in the Union Budget leading to high Gsec borrowing in fiscal 2013, along with sparse rate easing by RBI owing to the highcrudeoilpricesanditsultimateimpactonourinflationaswellassubsidiespayoutforFY13.

EQUITYOUTLOOK
PositivesentimentsprevailedduringthemonthofFebruary,2012withanticipationoffavorableeventscoming up. Sensex and Nifty index moved 3.13% and 3.39%. This was though an underperformance compared to manyofEuropeanpeersandUSheavyweights. Risk appetite was back with some sector indices like Real Estate, Power, Automobile and Information Technologybeatingthebenchmarkindicesbymiles. Foreign Institutional Investors bought stocks worth USD 5 Billion during the month where as domestic mutual fundssoldstocksworthUSD425Million.Inflationmoderatedto6.5%forthemonthofJanuary,2012.

February,2012

Two events that were bothering the markets were resolved. One of them was related to the Telecom and othertoPower. Supreme Court cancelled 122 licenses that were issued in 2008 (issuing directive to the TRAI to auction the spectrumin4months)pavingwaytoendthedeadlockthatwasbotheringthemarketsforalongtime. Committee of secretaries with principal secretary being from Prime Ministers Office also directed Coal India Ltd to honor its obligations in terms of meeting the coal requirements of plants that were coming up to 2015 where Fuel Supply Agreements were signed by them either by mining or by importing also helped improve sentiments. They further directed the company to supply coal for plants that have already come up by December,2011bytheendoffinancialyearwhereFuelSupplyAgreementshavebeensigned. India growth suffered for the third quarter of the FY2012 at 6.1%. This is one of the worst in the recent past andnearto2008lowsthatwehavehad.IndexofIndustrialProductiongrewat1.8%forDecember. However, it has probably hit the bottom. The LTRO, the Credit Policy, the Union Budget for FY 2013 and the election results is one of the closely watched events for the month of March, 2012 by investors amidst global liquidity.Wewouldliketomaintainneutralstandsforthemonthwithintheseuncertainty.

Disclaimer:
1) Thisnewsletteronlygivesanoverviewofeconomyandshouldnotbeconstruedasfinancialadvice 2) SBI Life Insurance Co. Ltd however makes no warranties, representations, promises or statements that information contained herein are correct and accurate. Please consult your Advisor/Consultant before makingtheinvestmentdecision