The year 2012-13 may perhaps be the year in which the downturn in the
Indian economy was arrested and a semblance of resurgence brought back.
Considerable credit goes to the Finance Minister for saving the nation
from a possible downgrade by the global rating agencies, which had
become a real threat by middle of the previous year.

The improved sentiment and confidence translated to substantial fund
flows being diverted to the Indian equity markets in the second half of
2012. FII flows to the Indian market aggregated a staggering US$ 30.8
billion for the full financial year ended March, 2013. The Sensex and
the BSE 200 index recorded an appreciation of 8.2 percent and 6 percent
respectively for the fiscal year. This compares better to the trend in
the previous year with the Sensex recording a negative return of 10.5
percent.

The Government and the Reserve Bank of India remain concerned, and
rightly so, about India’s current account deficit (CAD) which was a
staggering 5.1 percent of GDP for the FY 2012-13. The merchandise
trade deficit increased by 6.3 percent to US$ 5 billion in 2013 and
estimated to increase further to US$ 213 billion in the year 2013-14.
The Economic Advisory Council has estimated CAD after considering
remittances, service exports and invisible earnings to be higher at US$
100 billion in 2013-14 compared to an estimated US$ 94 billion in
2012-13.

India has benefited from its substantial export of services, mainly in
the field of information technology, which perhaps has now matured and
is facing an era of lower growth. In India 5.7 lakh engineers graduate
every year and aspire for fruitful employment. India urgently needs to
invest in competitive export oriented industry to keep its youth
employed, arrest currency weakness, lower imported inflation and
finally lower cost of capital. The government recognizing the aforesaid
has recently cleared a draft of a policy, to increase the share of
manufacturing in the country”s GDP from 16 percent to 25 percent in the
year 2025 – unfortunately measures to support industry with adequate
infrastructure or simpler and more efficient tax implementation have
yet to be undertaken.

Land issues and delays in environmental and other numerous clearances
continue to discourage capital investment resulting in an environment
of lower growth. The IIP growth numbers indicate considerable
resistance to capital commitment by the manufacturing or industrial
sector which arises from structural causes and perhaps may not reverse
in the short term even if supported by a more favourable capital cost
environment.

Increase in corporate debt and deterioration in the debt / equity
ratios of India”s corporate sector will continue to weigh upon the
prospects of incremental capital outlays and are sources of great
concern. The increase in the value of restructured loans is both a
reflection of the slowdown in the economy as well as aggressive but
unprofitable capital outlays on the part of the private corporate
sector.

The burden on the government of the petroleum subsidy is estimated to
be Rs. 96,880 crore in the year 2012-13. Phased decontrol of diesel
price and capping of subsidised LPG cylinders, a landmark reform
measure of this government, has given the comfort to the government to
budget a 33% reduction to Rs. 65,000 crore for 2013-14 -which may be
further reduced if lower oil prices become a long term paradigm.

The fall in overall inflation up to March 2013 supported by the fall in
global oil prices advocates further liberalization in liquidity and
lower interest rates, a path already undertaken by the Central Bank.

Shareholders will recall that our Company had, as early as during the
year 2011-12, allocated a sizeable amount for investment in fixed
income securities with a view that both inflation and interest rates
will come down in the coming years. The value of these securities have
appreciated, while earning a handsome yield, and further appreciation
is possible given the fall in inflation and expected easing of rates
from the Central Bank.

The last two years have been a trying period for equity markets with
the country clouded by news of scams, currency depreciation, high
inflation and a steep fall in growth. A lower rate of inflation and
interest rates pronounce a better macro environment going forward.
Analysts estimate that the earnings growth of Sensex companies may
rebound to double digits for the year ending March 2014. Reflecting
this sentiment the Sensex has shown a robust trend with the Sensex
reaching 20,000 in early May 2013.

Our Company in keeping with its policy to augment the potential for
appreciation, continues to invest for the long term while availing
opportunities to realize gains in periods of exuberance in the markets.
While it is difficult to predict the trend for the remaining part of
the current financial year, the Company with its diversified portfolio
of investments will endeavour to effectively steer its portfolio in
context of the aforesaid mixed bag of economic fundamentals.