India Feb 06 Jpmorgan

7/27/2019 India Feb 06 Jpmorgan

1/17

Asia Pacific Equity Research20 February 2006

Bharat PE Thik haiIndian Market Strategy

Asia Pacific Market Strategy

Adrian Mowat(852) 2800-8599

[email protected]

Joanne Goh(65) 6882-2450

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

See page 14 for analyst certification and important disclosures, including investment banking

relationships. JPM organ does and seeks to do business with compan ies covered in its research reports.

As a resul t, investors shoul d be aware that the fi rm may have a confl ict of in terest that could affect the

objectivi ty of thi s report. I nvestors shoul d consider th is repor t as only a single factor in making their

investment decision. Customers of JPMorgan i n the Uni ted States can receive independent, thi rd-par ty

research on the company or companies covered in th is report , at no cost to them, where such research

is avail able. Customers can access this independent research at www.morganmar kets.com or can call

1-800-477-0406 toll free to request a copy of th is research.

Figure 1: Sensex performance

2000

5000

8000

11000

Jan-03 Jan-04 Jan-05 Jan-06

Source: Datastream

Figure 2: MSCI India Relative to MSCIAsia Pac ex Japan

75

100

125

150


Source: MSCI, Datastream

Figure 3: MSCI India Relative to MSCIEM Asia

75

100

125

150


Source: MSCI, Datastream

India remains a weight of money story. Local savers are shiftingto equities and the market continues to benefit from international

flows into emerging equity markets.

We already have an Indian set PE, OK (thik hai). Our SensexIndex target set in October 2005 was hit on 6 February. We are

increasing the December 2006 target to 11000. This is based on

the market sustaining current forward PE of 17 (MSCI India). We

rate the market as a neutral relative to Asian and emerging

markets.

Our Bharat PE theme remains the key driver of our positive viewon Indian equities. Simply it is still rational for Indian savers toswitch from low yielding cash and bonds into equities. Locals are

the marginal buyers setting the valuation.

We suspect that India will continue to benefit from demand foremerging market equities. But India may get less of those flows

than other emerging markets due to high relative valuations.

The key risks to the market are high valuations and a deterioratingcurrent deficit. Both make the market more vulnerable to a decline

in risk appetite than other Asian and emerging markets.

We recommend that investors manage risk in this liquidity drivenexpensive market by investing in liquid large caps such as BHEL,

ACC, Infosys, HDFC, L&T, ITC, and Bajaj Auto.

Table 1: Indian to p picks high RoEs and PEs

PER DY ROETicker Rating FY06 FY07 FY06

(%)FY06(%)

Bajaj Auto BJAT.BO OW 22.4 17.8 1.5 22.5ITC ITC.BO OW 26.4 23.2 1.2 24.3HDFC HDFC.BO OW 23.0 19.0 1.5 28.5Bharat Heavy Electricals Ltd BHEL.BO OW 30.2 22.6 0.6 20.9Larsen & Toubro LART.BO N 33.7 26.3 0.9 23.8Infosys Technologies INFY.BO OW 30.7 23.3 0.5 32.5Associated Cement Companies ACC.BO OW 21.2 17.2 1.7 26.2

Source JPMorgan, DataStream, MSCI, fiscal years to March


2/17

2


Adrian Mowat(852) [email protected]

Start with the risksOur base case is that economic and profit growth remains

robust in India. This supports current valuations. Localinvestors confidence continues to build sustaining the

secular shift from cash and bonds into equities.

Investors should focus on two key risks:

1. High valuations

2. Deteriorating current account deficit

Other risks include:

3. Rapid rise in property prices in Mumbai and Delhi

4. Agricultural output -a poor monsoon could lead to

the import of agricultural staples adding to the

pressure on the current account. Poor rural incomegrowth would also increase the risk of political

change.

5. Politics is likely to increase market volatility. There

are five state elections in 2006. In 2004 the BJP lost

the general election to the surprise of the international

investor and business community against the

backdrop of a strong economy. Be prepared for the

government to pursue populist policies.

Table 2: State election s in 2006

State Ruling Party State electionschedule)

Assam Indian National Congress (INC) MayKerala United Democratic Front (Congress

led alliance )May

Pondicherry INC + Tamil Manila Cong. MayTamilnadu AIDMK Apr-MayWest Bengal CPI Apr-May

Source: Election Commission of India

Note Kerala and West Bengal elections would see INC in direct confrontation with itsUPA alliance.

High Valuations

India is the most expensive market in Asia ex Japan

based on either 12 month forward PE or dividend yield.

Our composite valuation indicators are one standard

deviation expensive. Bears on India have been

incorrectly selling the market based on valuations forsome time. Our base case is that the market will re-rate

and we have therefore held our nerve while the quant

signals have indicated that it is time to sell.

Figure 1: 12 month forward PE

9.0 12.0 15.0 18.0

Korea

Indonesia

Thailand

Philippines

Taiwan

China

M alaysiaAP ex Japan

Singapore

Aus tralia

Hong Kong

India

Source: MSCI, IBES

Figure 2: Valuations say s ell - JPMorgans CVIs

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5

RussiaKoreaIndia

S. AfricaMexicoCzechTurkey

BrazilHongkongThailand

ChinaAustraliaIndonesiaHungaryTaiwanSingapore

MalaysiaPhilippine

Poland

Cheap Expensive

Source: JPMorgan. Updated as of 10 February, CVI composite valuations indicators

See Table 11: Indian Valuations and Composite

Valuation Indicator Calculationpage 17 for details of all

time highs and lows in MSCI India valuations.

Table 3: India may get l ess of the fl ows - BRIC Relative Valuations

12 M Fwd PE 2006 Div Yld(%)

2006 RoE(%)

2003-2006EPS growth

(%)Brazil 7.9 5.6 27.9 20.8Russia 11.2 1.4 14.3 14.0China 13.1 2.4 16.7 20.2India 17.1 1.4 22.0 19.1

Source: DataStream, JPMorgan calculationsBRIC = Brazil, Russia, India and China


3/17


4/17

4



The Bharat PE Bull Case

Table 4: Indian Equi ty Market Drivers

Videsh (Foreign) Bharat (India, Local)High relative real GDP growth Shift from bonds to equitiesRelative valuation Currency revaluationNational service discount Tax changeLower capital gains tax Initial public offering and investor

baseADR local arbitrage More local institutionsEarnings less sensitive to FX

Source: JPMorgan

Our new Index targets for MSCI India and the Sensex are

445 and 11000 respectively. An index targets indicates

our expectation for the direction of the market and

magnitude of returns. We expect volatility to increase

relative to returns in 2006. The quantitative checks onour index targets illustrate the re-rating that we think the

markets will sustain and the risk of today's high

valuations. If we use our composite valuation indicators

to calculate an MSCI index based on median valuation

the result is 352, 21% below our new target. Based on

Indias three year average forward PE the end 2006 index

target would be 342. Our target is based on the

assumption that the current forward valuation of the

MSCI India is sustained at 17 times, resulting in a target

of 445.

Demand for Indian equitiesIndex performance and demand for equities have

complemented each other over last two years. A larger

base of FIIs, domestic mutual funds and private

insurance firms have provided both healthy demand for

equities and reduced volatility. Local savers confidence

in equities has increased with the combination of healthy

returns and lower volatility. Tax breaks for long term

equity mutual investments have further generated

demand for equities.

Table 5: Mutual fund returns (18 February 2006)

Category Annual Return %

Equity-Diversified 54.7Equity-ELSS 51.0Equity-Index 45.4Balanced 32.9Income 6.5Liquid 5.4Gilt 3.7

Source: http://www.myiris.com/mutual/index.php

Figure 5: Number of FIIs registered

823

400

500

600

700

800

900

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

Source: Bseindia.com

Table 6: Number ofdemataccounts

No. of Accounts (million)Month -

Year

Client Accounts % oya

Dec-03 4.6Dec-04 6.0 29Dec-05 7.3 22

Source: NSDL.co.in

Demat accounts facilitate direct holding of securities in electronic format.

Figure 6: Cumulative net purch ases of FII and mutual fu nd over2005

0

2,000

4,000

6,000

8,000

10,000

12,000

Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05

US$ mn

FII Flows

Equity Fund Net

Sunscription

Source: SEBI, AMFI

Debt schemes have suffered net redemptions of US$4.2

billion in last two years compared to US$6.8 billion net

subscriptions for equity schemes. The slow but

continuous rise of bond yield is good for relative

attractiveness of equities.


5/17

5



Figure 7: Data on mutual fun d subscription s by category

(300)

(200)

(100)

0100

200

300

2000 2001 2002 2003 2004 2005

Equity Flows Debt Flows

INR bn

Source: AMFI India

Economic momentum

Indias economic vulnerability is low relative to its

history. The drivers of economic growth have broadened

and the dependency on the monsoon declined. Large

foreign exchange reserves provide a cushion against a

reversal in balance of payment flows.

Domestic consumption and investments momentum

continues to surprise on the upside. The current fiscal

year (FY06) consensus GDP growth expectation has

moved up from 6.9% to 7.8%. If current momentum is

maintained FY07 growth forecast will need to be revised

higher. The monsoon continues to be a risk and therefore

economist will be unlikely to revise forecasts higher untilafter the monsoon season.

Past reform is contributing to economic momentum.

With the removal of regulatory constraints and

availability of capital investment in new sectors, such as

retail, real estate, airline, and BPO, is growing rapidly.

The job creation by these investments further helps

support strong consumption growth.

Sustainable long term growth in India requires that the

benefits are shared. The electoral defeat of the BJP led

government in 2004 surprised the investment community

who where focusing India's strong industrial and servicesector performance rather than poor income growth in

rural area. 60% of India's workforce is employed in

agriculture. Political success requires rural income

growth. The flexibility for price increases or further

subsidies is limited. India's finance ministers main

concern is keeping inflation low. It is estimated that 55%

of household income is spent on food; therefore a general

increase in agricultural prices would be unacceptable.

Agricultural subsidies including subsidies power exceed

US$12 billion. Power sector reform requires the eventual

end of to agricultural power subsidies. To achieve the

three objectives of boosting rural incomes, lowering

subsidies and low consumer prices requires the reform of

agricultural production and distribution to reduce waste

and boost efficiency. This is beginning to happen withcorporate investment in agricultural business providing

capital and knowledge. If political obstacles can be

overcome agricultural reform could add a further leg to

India's growth story.

Figure 8: Consensus real GDP growth expectations

6.6

6.8

7.0

7.2

7.4

7.6

7.8

8.0

Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06

%

FY 06

FY 07

Source: Consensus economics

Figure 9: GDP growth with forecasts

0.0

2.0

4.0

6.0

8.0

10.0

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

%

Source: JPMorgan economics, JPMorgan estimates

Figure 10: Long term chart of i nflation

0.0

5.0

10.0

15.0

20.0

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

%

Source: JPMorgan economics


6/17


7/17

7



Conclusion

Our base case is that economic and profit growth remains

robust in India. This supports current valuations. Localinvestors confidence continues to build sustaining the

secular shift from cash and bonds into equities. This

drives Indian equities higher. Our new Sensex target is

11000.

The Indian market is expensive. Based on the MSCI

India the forward PE at of our end 2006 target would be

17 times. This plus a widening current account make the

market vulnerable to a reversal in risk appetite.

We are managing the risks of investing in this market by

recommending a neutral weighting relative to both Asia

Pacific ex Japan and global emerging market. Also werecommend investors focus on large cap blue chip stocks.

The valuation discounts of small and mid cap companies

are not high enough to compensate for the lower liquidity

in our view. There is anecdotal evidence that interest

costs for small to medium size companies is rising

generating the risk of earnings disappointments.

See page 8 for our Indian model portfolio.

Figure 14: Relative performance of mid-cap versus larg e cap

0

100

200

300

400

500

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

CNX Midcap

Nifty

Source: DataStream

Figure 15 Forward PE and trailing PE plus lo ng bon d yield

5

10

15

20

25

30

35

Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05

4.0

6.0

8.0

10.0

12.0

14.0%

10 year Treasury (R)

Trailing PE

12 M Fwd PE

Source: MSCI, IBES, DataStream

Figure 16: P/B and RoE

1

2

3

4

5

99 00 01 02 03 04 05

12.0

16.0

20.0

24.0%

P/BRoE (L)

Source: MSCI, DataStream


8/17

8



Table 9: Indian model portfolio

2/17 Chang e (%) MSCI JPM Dev. PER DY ROE

Ticker Price Rating 2 wk Ytd Weight Weight (%) FY06 FY07 FY06 FY06Consu mer Discr etionary 255 8.3 15.6 7.6 9.0 1.4 22.6 19.9 1.3 20.7Tata Motors TAMO.BO 773.2 OW 7.7 18.4 3.2 5.0 1.8 18.4 16.3 2.3 27.9Bajaj Auto BJAT.BO 2401.3 OW 12.2 20.0 1.5 4.0 2.5 22.4 17.8 1.5 22.5

Consum er Stapl es 198 14.7 17.6 9.2 9.3 0.1 34.1 28.1 1.8 29.3ITC ITC.BO 161.7 OW 6.0 13.8 3.8 9.3 5.5 26.4 23.2 1.2 24.3Energy 491 0.2 3.1 17.3 13.0 -4.3 13.8 12.7 1.7 22.2Reliance Industries RELI.BO 693.3 NR -0.5 -22.1 9.2 9.2 0.0 10.9 10.3 1.3 20.8Oil and Natural Gas Commission ONGC.BO 1119.8 NR -3.6 -4.7 3.8 3.8 0.0 9.0 7.6 4.4 31.5Finan cial s 2364 3.7 5.4 18.6 15.7 -2.9 20.0 16.0 1.2 18.7HDFC HDFC.BO 1300.1 OW -0.4 7.9 4.9 8.0 3.1 23.0 19.0 1.5 28.5ICICI Bank ICBK.BO 586.5 OW 2.8 0.3 7.7 7.7 0.0 18.8 16.4 1.4 17.2Health care 450 7.0 16.3 6.1 3.0 -3.1 32.8 24.4 1.1 21.1Cipla CIPL.BO 529.2 OW 9.4 19.4 0.8 3.0 2.2 29.3 24.9 1.0 27.9Indu str ials 780 5.7 23.7 9.5 11.0 1.5 25.8 22.1 1.1 32.8Bharat Heavy Electricals Limited BHEL.BO 1863.1 OW 1.1 34.4 2.3 7.0 4.7 30.2 22.6 0.6 20.9

Larsen & Toubro LART.BO 2286.1 N 3.9 24.0 2.5 4.0 1.5 33.7 26.3 0.9 23.8Informat ion Technol ogy 389 -0.2 -4.0 20.8 22.0 1.2 31.1 24.2 0.6 30.4Infosys Technologies INFY.BO 2786.0 OW 0.0 -7.0 12.0 13.5 1.5 30.7 23.3 0.5 32.5Patni Computer PTNI.BO 483.4 OW 0.8 -2.4 0.0 3.0 3.0 16.9 13.4 0.7 16.8Satyam Computers SATY.BO 740.6 OW 1.9 0.4 3.6 5.5 1.9 24.3 18.2 0.9 22.9Materi als 488 1.7 10.4 7.2 10.0 2.8 11.3 11.3 1.7 28.6Gujarat Ambuja Cements GACM.BO 85.6 OW 1.1 7.5 0.9 4.0 3.1 18.6 15.3 2.1 21.9Associated Cement Companies ACC.BO 579.9 OW -0.1 8.6 0.5 6.0 5.5 21.2 17.2 1.7 26.2Telecommun icatio n Services 98 8.7 2.9 1.1 3.0 1.9 14.0 14.6 3.4 NABharti Tele-Ventures Limited BRTI.BO 362.8 OW -1.3 4.9 0.0 3.0 3.0 30.9 20.7 0.0 30.2Util iti es 424 -0.7 6.1 2.8 4.0 1.2 15.3 14.9 2.1 NATata Power TTPW.BO 487.7 OW 0.9 11.9 0.5 4.0 3.5 21.4 19.8 1.5 9.3

MSCI Total 410 3.6 7.0 100 100 0 20.5 17.8 1.3 21.8

Source JPMorgan estimates, DataStream, MSCI, IBES data used for non rated stocks


9/17

9



JPM

organIndiaUniverse


10/17


11/17


12/17

12




13/17

13




14/17

14



Companies Recommended in This Report (as of COB 16 February 2006)

Associated Cement Companies Ltd (ACC.BO/Rs586.75/Overweight), Bajaj Auto (BJAT.BO/Rs2,372.75/Overweight),

Bharat Heavy Electricals (BHEL) (BHEL.BO/Rs1,873.15/Overweight), Bharti Tele-Ventures(BRTI.BO/Rs362.55/Overweight), Cipla Limited (CIPL.BO/Rs540.75/Overweight), Gujarat Ambuja Cements(GACM.BO/Rs85.55/Overweight), HDFC (Housing Development Finance Corporation)(HDFC.BO/Rs1,338.50/Overweight), ICICI Bank (ICBK.BO/Rs598.00/Overweight), Infosys Technologies(INFY.BO/Rs2,780.60/Overweight), ITC Limited (ITC.BO/Rs166.70/Overweight), Larsen & Toubro(LART.BO/Rs2,344.90/Neutral), Patni Computer (PTNI.BO/Rs474.10/Overweight), Satyam Computers(SATY.BO/Rs742.20/Overweight), Tata Motors (TAMO.BO/Rs800.10/Overweight), Tata Power(TTPW.BO/Rs500.70/Overweight)

Analyst Certification

The research analyst who is primarily responsible for this research and whose name is listed first on the front cover certifies(or in a case where multiple research analysts are primarily responsible for this research, the research analyst named first ineach group on the front cover or named within the document individually certifies, with respect to each security or issuerthat the research analyst covered in this research) that: (1) all of the views expressed in this research accurately reflect his or

her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst'scompensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by theresearch analyst in this research.

Important Disclosures:

Market Maker: JPMSI makes a market in the stock of Infosys Technologies.

Liquidity Provider: JPMSI and/or one of its affiliates normally provides liquidity in the stock of AssociatedCement Companies Ltd, Bajaj Auto, Bharat Heavy Electricals (BHEL), Bharti Tele-Ventures, Cipla Limited,

Gujarat Ambuja Cements, HDFC (Housing Development Finance Corporation), ICICI Bank, ITC Limited,

Larsen & Toubro, Patni Computer, Satyam Computers, Tata Motors, Tata Power.

Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/ordebt securities for HDFC (Housing Development Finance Corporation), Satyam Computers, Tata Power within

the past 12 months.

Analyst Position: The covering analyst, research associate, or member(s) of their respective household(s) have along position in the securities of ICICI Bank.

Beneficial Ownership (1% or more): JPMSI or its affiliates beneficially own 1% or more of a class of commonequity securities of ICICI Bank, Infosys Technologies, Tata Motors.

Client of the Firm: Associated Cement Companies Ltd is or was in the past 12 months a client of JPMSI. BajajAuto is or was in the past 12 months a client of JPMSI. Bharti Tele-Ventures is or was in the past 12 months a

client of JPMSI. Gujarat Ambuja Cements is or was in the past 12 months a client of JPMSI. HDFC (Housing

Development Finance Corporation) is or was in the past 12 months a client of JPMSI; during the past 12

months, JPMSI provided to the company non-investment banking securities-related service. ICICI Bank is or

was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company non-

investment banking securities-related service and non-securities-related services. Infosys Technologies is or was

in the past 12 months a client of JPMSI. Larsen & Toubro is or was in the past 12 months a client of JPMSI;

during the past 12 months, JPMSI provided to the company non-investment banking securities-related service

and non-securities-related services. Patni Computer is or was in the past 12 months a client of JPMSI. SatyamComputers is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the

company investment banking services. Tata Motors is or was in the past 12 months a client of JPMSI. Tata

Power is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the

company investment banking services and non-securities-related services.

Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation forinvestment banking services from Satyam Computers, Tata Power.

Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensationfor investment banking services in the next three months from Larsen & Toubro, Satyam Computers, Tata

Motors, Tata Power.


15/17

15



Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for productsor services other than investment banking from HDFC (Housing Development Finance Corporation), ICICI

Bank, Larsen & Toubro. An affiliate of JPMSI has received compensation in the past 12 months for products orservices other than investment banking from ICICI Bank, Tata Power.

Price Charts for Compendium Reports: Price charts are available for all companies under coverage for at least one yearthrough the search function on JPMorgan's website https://mm.jpmorgan.com/disclosures/companyor by calling this tollfree number (1-800-477-0406).

Explanation of Ratings and Analyst(s) Coverage Universe: JPMorgan uses the following rating system: Overweight[Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in theanalysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stockwill perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.]Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of thestocks in the analysts (or the analysts teams) coverage universe.] The analyst or analysts teams coverage universe is thesector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s)coverage universe.

JPMorgan Equity Research Ratings Distribution, as of January 3, 2006

Overweight(buy)

Neutral(hold)

Underweight(sell)

JPM Global Equity Research Coverage 41% 42% 17%IB clients* 46% 45% 38%

JPMSI Equity Research Coverage 35% 49% 17%IB clients* 63% 55% 43%

*Percentage of investment banking clients in each rating category.For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category, our Neutral rating falls into a holdrating category, and our Underweight rating falls into a sell rating category.

Valuation and Risks: Company notes and reports include a discussion of valuation methods used, including methods usedto determine a price target (if any), and a discussion of risks to the price target.

Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensationbased upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overallfirm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Other Disclosures:

Legal Entities: Equity Research is a product of J.P. Morgan Securit ies Inc. (JPMSI) and/or its affiliates worldwide. JPMSI is a member of NYSE, NASDand SIPC. The analysts who write global equity research are employees of JPMSI or its affiliated companies worldwide, including the followingcompanies. J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the Financial ServicesAuthority. J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. J.P. Morgan Securities AsiaPrivate Limited (Co. Reg. No.: 197300590K) is regulated by the Monetary Authority of Singapore (MAS) and the Japan Financial Services Agency(FSA). J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) and J.P. Morgan Securities (Far East) Limited (CE number AAB026) areregulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong respectively. J.P. Morgan SecuritiesSingapore Private Limited (Co. Reg. No.: 199405335R) is a member of Singapore Exchange Securities Trading Limited and is regulated by the MAS.JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) (formerly known as J.P. Morgan Malaysia Sdn Bhd) is a Participating Organization of Bursa MalaysiaSecurities Bhd and is licensed as a dealer by the Securities Commission in Malaysia. J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence

No: 238188) and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066, a Market Participant with the ASX)(JPMSAL) are licensed securities dealers. J.P. Morgan Securities New Zealand Limited is a New Zealand Exchange Limited Market Participant.J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and FuturesCommission. J.P. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and The Stock Exchange, Mumbai and isregulated by the Securities and Exchange Board of India. JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and isregulated by the Ministry of Finance and the Securities and Exchange Commission PT. J.P. Morgan Securities Indonesia is a member of the Jakarta Stock

Exchange and Surabaya Stock Exchange and is regulated by the BAPEPAM. This report is distributed in the Philippines by J.P. Morgan SecuritiesPhilippines, Inc. Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil.
https://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/company


16/17

16



Options related research: If the information contained herein regards options related research, such information is available only to persons who

have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporations Characteristics and Risks of

Standardized Options, please contact your JPMorgan Representative or visit the OCCs website at

http://www.optionsclearing.com/publications/risks/riskstoc.pdf.General: Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectivelyJPMorgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analystsinvolvement with the issuer. Opinions and estimates constitute our judgement as of the date of this material and are subject to change without notice. Past

performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. The opinions and recommendations herein do not takeinto account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments orstrategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instrumentsmentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Clients shouldcontact analysts and execute transactions through a JPMorgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

Planned Frequency of Updates: JPMorgan provides periodic updates on companies/industries based on company-specific developments orannouncements, market conditions or any other publicly available information.

U.K. and European Economic Area (EEA): Issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued byJPMSL has been prepared in accordance with JPMSLs Policies for Managing Conflicts of Interest in Connection with Investment Research which can befound at http://www.jpmorgan.com/pdfdoc/research/Confl ictManagementPolicy.pdf. All research issued to private clients in the U.K. is subject to the

following: the investments and strategies discussed here may not be suitable for all investors; if you have any doubts you should consult your investmentadvisor. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange mayhave an adverse effect on the value of investments.

Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd. Frankfurt Branch and JPMorgan Chase Bank, N.A., Frankfurt Branchwho are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Australia: This material is issued and distributed by JPMSAL in Australia towholesale clients only. JPMSAL does not issue or distribute this material to retail clients. The recipient of this material must not distribute it to anythird party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms wholesale client and retailclient have the meanings given to them in section 761G of the Corporations Act 2001. Hong Kong: The 1% ownership disclosure as of the previousmonth end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for persons licensed by or registered with the Securitiesand Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from twomonths prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan International DerivativesLtd and listed on The Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk/prod/dw/Lp.htm.Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul branch.

Singapore: JPMSI and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% orgreater, the specific holding is disclosed in the Legal Disclosures section above. India: FOR PRIVATE CIRCULATION ONLY NOT FOR SALE.

Revised January 3, 2006.

THIS MATERIAL IS DISTRIBUTED IN JAPAN BY J.P. MORGAN SECURITIES ASIA PTE LIMITED.THIS MATERIAL IS ISSUED AND DISTRIBUTED IN SINGAPORE BY J.P. MORGAN SECURITIES SINGAPORE

PRIVATE LIMITED [MICA (P) 235/09/2005].THIS MATERIAL IS ISSUED AND DISTRIBUTED IN MALAYSIA BY JPMORGAN SECURITIES (MALAYSIA) SDN. BHD.

(18146-X) (FORMERLY KNOWN AS J.P. MORGAN MALAYSIA SDN BHD).

Copyright 2006 JPMorgan Chase & Co. All rights reserved. Additional information available upon request.


17/17



JPMorgan India Research TeamSachin Seth Financials (91-22) 56393004 [email protected] Balakrishnan Financials (91-22) 56393003 [email protected] Ganapathy Financials (91-22) 56393002 [email protected]

Manoj Singla IT (91-22) 56393017 [email protected] Balakrishnan IT (91-22) 56393008 [email protected]

Vijay Chugh Autos and Consumer (91-22) 56393001 [email protected] Chopra Autos and Consumer (91-22) 56393002 [email protected]

Gautam Chhaochharia Utilities, Capital Goods & Building materials (91-22) 56393010 [email protected] Kumar Utilities, Capital Goods & Building materials (91-22) 56393020 [email protected] Tandon Utilities, Capital Goods & Building materials (91-22) 56393011 [email protected]

Jesal Shah Health Care (91-22) 56393012 [email protected]

Ravi Agarwal Health Care (91-22) 56393013 [email protected]

Sanjay Chawla Telecom (91-22) 56393019 [email protected] Agarwal Telecom (91-22) 56393007 [email protected]

Table 11: Indian Valuations and Composi te Valuation Indicator Calculatio n

Countr y 17-Feb LT LT 3Y 3Y Percent from No. of SD No. of SDValuationMeasure

Value Avg Std.Dev.

Avg Std.Dev.

High Date IndexLevel

Low Date IndexLevel

High Low From LTAverage

From STAverage

TotalScore

MSCI 404.0P/E 19.6 16.1 4.8 15.3 2.3 33.7 Feb-94 168.6 10.4 Nov-98 102.5 -42% 88% 0.7 1.9P/B 3.9 2.9 0.8 3.1 0.5 5.4 Aug-94 173.1 1.8 1-Sep 119.1 -27% 118% 1.3 1.7D/Y 1.3 1.7 0.3 1.9 0.3 2.6 3-Apr 126 1.0 Feb-00 275.1 -50% 32% -1.3 -1.912m FwdPER

16.0 12.8 3.0 13.1 1.9 23.6 Sep-94 163.4 8.4 1-Sep 119.1 -32% 91% 1.1 1.6

Bond/Earnings YieldRatio

1.5 1.7 0.7 1.0 0.2 3.8 Feb-94 168.6 0.6 3-Apr 126 -61% 131% -0.2 2.3

Bond /DividendsYield Ratio

5.4 6.4 2.5 3.4 0.9 11.1 Sep-94 163.4 2.3 3-Apr 126 -51% 137% -0.4 2.1

Composite score 0.7 1.8 1.2

Source: DataStream, JPMorgan calculations, compose score is the number of standard deviation from average

Documents

India Feb 06 Jpmorgan