Why invest in Small

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• Why invest in Small Mid cap Companies

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The Big Picture First
We came to India for the costs, stayed for the
quality and are now investing for innovation -
Dan Scheinman, Cisco System Inc. as told to
Business Week, August 2005
India is a developed country as far as
intellectual capital is concerned - Jack Welch,
General Electric
India is among the three most attractive FDI
destinations in the world - A T Kearney, FDI
Confidence Index 2005
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Conducive Business Environment in India
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Opportunities
Consumption
Infrastructure
Outsourcing
30-crore-strong consuming class and growing at 8
p.a.
50 share in the Global Off-shore IT and BPO
services by 2008
Strong Investment Demand (USD bn)
Urban India
Urban India
220 of the Fortune 500 companies source software
from India
By 2009-10, over 50 cr. Indians are expected to
have a household income of over Rs. 4,50,000 per
annum
Over 250 billion of investment needed in 5 years
One-fifth of Fortune 500 companies have set up R
D centers in India
in PPP terms
Source NCAER, Investment Commission of India,
RBI, Edelweiss Research
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Opportunities
Rural Transformation
SEZs

• Corporate taking initiatives to reduce
  inefficiencies ITC E Chaupal
• Infrastructure inadequacy connectivity problems
  could be out of the way with villages getting
  networked Aksh Optifibre providing internet,
  cable and telephone on one network for the whole
  village
• Micro credit could become reality
• Growth in rural income can increase demand and
  propel economy to higher growth trajectory

• A new catalyst for growth by creating world class
  infrastructure and reducing the cost of business
  thereby fuelling overall growth
• To benefit the labor intensive and competitive
  businesses like textiles
• Currently only 14 SEZs in India, collectively
  contributing only 6 to exports. This could
  change due to an entry of new private sector
  players like Bajaj Auto, MM, Ranbaxy, TCS, Wipro
  etc., fiscal incentives, and labor flexibility
• In China, SEZs account for 12 of its GDP. India
  too can replicate the China experience

A second green revolution could take growth to a
different trajectory
SEZs promote infrastructure, trade, employment
generation and investments
Source Citigroup
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Resources
Manpower
Capital
India accounts for over 25 of the worlds youth
USD 35.4 bn FDI in India since FY00
Incidentally, this amount is higher than total
equity AUM of mutual funds industry in India today
25 crore people will join Indias workforce by
2020
India has the largest number of English speaking
engineers and scientists
Source Source The World Fact Book
(www.cia.gov), CMIE, Investment Commission of
India, AMFI website, The econimist Intelligence
Unit, Deutsche Bank Research
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Why invest in Small Mid cap Companies
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Transition from Small / Mid cap to Large cap
Business Stages and Market Valuation
Strong fundamental growth and PE re-rating
trigger Small / Mid caps to transition to Large
caps
Above graph is a representation from different
theories on the various business stages of a
company Main Source The seven business stages
of business life, by Darrell Zahorsky
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Transition from Small / Mid cap to Large cap
Growth
Growing Market Size Bharti Telecom
Geographical Expansion Deccan Chronicle
Conducive Environment Robust Economic Growth
New Product Breakthrough I Flex
Consolidation Bajaj Hindustan
Focus on Niche Markets Kotak Mahindra Bank
The above representation is NOT a stock
recommendations and is discussed solely for
illustrative purposes. Prudential ICICI AMC may
or may not have any present positions in these
stocks. Past performance is not a guide to future
returns. Source Motilal Oswal
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Growth
Growth Registered by Yesteryears Mid caps
Number of companies with PAT of gt 125 crores have
grown from 78 to 199 over the last 6 years
Source Motilal Oswal Securities
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Transition from Small / Mid cap to Large cap
PE Re-rating
Investors Interest
Awareness Coverage
Size and Scale
Liquidity, Growing Assets with Professional Asset
Managers
Credit Worthiness
Corporate Governance
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PE Re-rating
Emerging to Surging - A Dramatic PE Re-rating
Number of companies with Market cap of more than
Rs. 1000 crores have increased from 99 to 350
over the last 5 years
Source Motilal Oswal Securities. Extrapolating
the same P/E and assuming the same capital.
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Growth Followed by PE Re-rating
Leading English Daily in Hyderabad Re-rating
Rationale Increase in Geographical spread.
Starting from Hyderabad, it has expanded into
Chennai. Planning to become a dominant regional
player by entering into Karnataka market.
Stock Price Indexed and adjusted for bonuses and
share splits. Data Source Motilal Oswal
Securities Limited. Annualised for FY07
Internal calculations - based on EPS declared as
on Dec-06 and price as on Jan 17, 2007 _at_ Internal
calculations - based on EPS declared as on Mar-05
and price as on Mar 31, 2005. The above
representation is NOT a stock recommendations and
is discussed solely for illustrative purposes.
Prudential ICICI AMC may or may not have any
present positions in these stocks. Past
performance is not a guide to future returns.
Extrapolating the same P/E and assuming the same
capital.
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Growth Followed by PE Re-rating
Telecom-vertical-focused IT products company with
leadership status in fraud management and revenue
assurance space. Re-rating Rationale Expansion
of markets through acquisitions (6 acquisitions
in the last 7 years). Acquisition of Lightbridge,
Alcatels Fraud Management Group and Azure
Solutions has helped increased the size of the
business manifold.
Stock Price Indexed and adjusted for bonuses and
share splits. Data Source Motilal Oswal
Securities Limited. Prabhudas Liladhar estimate
EPS for FY07 Internal calculations - based on
the estimated EPS for FY07 and price as on Jan
17, 2007 _at_ Internal calculations - based on EPS
declared as on Mar-02 and price as on April 01,
02. The above representation is NOT a stock
recommendations and is discussed solely for
illustrative purposes. Prudential ICICI AMC may
or may not have any present positions in these
stocks. Past performance is not a guide to future
returns.
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Growth Followed by PE Re-rating
Manufacturer of Mill Internals for Cement
Mining Industry Re-rating Rationale Market
Expansion from Cement Industry to Mining Industry
and providing tailor-made solutions to
requirements of the mining industry.
Stock Price Indexed and adjusted for bonuses and
share splits. Data Source Motilal Oswal
Securities Limited. Annualised for FY07
Internal calculations - based on EPS declared as
on Sept-06 and price as on Jan 17, 2007 _at_
Internal calculations - based on EPS declared as
on Mar-06 and price as on Mar 31, 2006. The above
representation is NOT a stock recommendations and
is discussed solely for illustrative purposes.
Prudential ICICI AMC may or may not have any
present positions in these stocks. Past
performance is not a guide to future returns.
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Historical Performance
Rs. 10000 invested in April 2003 would have grown
to
Data Source Bloomberg
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Small and Mid caps Available _at_ Discount
Since September 05, Small and Mid caps have under
performed Large caps Select Small and Mid caps
have potential to catch up
Concern of liquidity keeps short term investors
away from these exciting long term investment
opportunities
Concerns for short term investors provide an
opportunity for long term investors
As on January 17, 2007. Internal Analysis. Data
Source Bloomberg
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Investing in Small and Mid caps Needs

• Superior stock selection capability
• Constant monitoring
• Calibrated entry and exit
• Evaluation of corporate governance standards
• Diversification

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Thank you