CHI Investments Ltd merged Management Discussions

CHI INVESTMENTS LIMITED ANNUAL REPORT 2007-2008 MANAGEMENT DISCUSSION AND ANALYSIS Industry Structure and Developments India is the 7th largest and 2nd most populous country in the world. India has long been considered a country of unrealized potential. A new spirit of economic freedom is now stirring in the country, bringing sweeping changes in its wake. A series of ambitious economic reforms aimed at deregulating the country and stimulating foreign investment has moved India firmly into the front ranks of the rapidly growing Asia Pacific region and unleashed the latent strengths of a complex and rapidly changing nation. The Company has, pursuant to a Scheme of Arrangement, taken over from CEAT Limited a diversified investment portfolio, and thus, has interests in varied sectors like power transmission, power generation and distribution, entertainment, plantations and technology. Opportunities and future outlook Asian equity markets are sizable and fast growing. Since 1990, Asias capitalization has more than doubled in U.S. dollar terms to $13.7 trillion which is 30% of the world capitalization. Excluding Japan and Australia, it has risen almost tenfold. The financial hubs of Hong Kong, Singapore and Japan dominate the region, accounting for two-thirds of Asian equity assets. Markets in some other countries, such as India, Malaysia, and Taiwan Province of China, are also much developed. The growth in Asian markets has been accompanied by improved liquidity and breadth. Since 1990, market liquidity (share turnover) has more than doubled in relation to GDP, while turnover velocity (share turnover/market capitalization) has risen almost four fold. Market breadth (the percentage of market capitalization and turnover) accounted for by the ten largest companies is now greater in Asia than in other emerging markets, although less than in industrial countries. The factors driving the development of Asian Equity Markets can be identified as below: * International investor diversification * Financial integration * Growing domestic institutional investor base * Improvements in market infrastructure and governance The Indian economy exhibited a strong 9.4% (y-o-y) growth for the entire FY 07. The sectors contributing to this performance were the trade, hotels, transport and communication sector expanding at 13%, manufacturing at 12.3%, construction at 10.7%, and financing, insurance, real estate and business services sector at 10.6%. Indian equity markets have outperformed most developed country equity markets in the cast six years Further, it is a reflection of confidence in the administration of regulatory safeguards in Indian stock markets. By December 2007, Indian equity indices have risen to record levels and the Sensex was up by about 700% since its low in 2001. In sharp contrast, the Dow is less than 20% up since 2000 and the Nasdaq is still 45% below its peak in 2000. However, post December 2007, increased crude prices and higher inflation have caused a dent in market sentiments which has led to decline of 34.20% of BSE Sensex index from peak of 20869.78 on January 9, 2008 to low of 13731.54 in June 2008. SEBIs efforts at maintaining market integrity are rooted in sound principles. Market surveillance is entrusted to stock exchanges and stock watch systems are used to detect unusual price movements. In addition, the regulator, in coordination with stock exchanges, has instituted a range of risk- mitigation measures including margining, price bands and inspections of intermediaries., This has improved/ maintained investors confidence in the capital market despite recent fall in the said BSE index. To summarize, Indian equity and exchange-traded derivatives markets are closer to international best practices as compared to debt markets. Going by the current trend in the capital markets, the future of the Company appears to be secure. Risks, concerns and threats: Risks factors and threats: 1. Conditions in the Indian securities market may affect the price or liquidity of the Equity Shares. Though the Indian securities markets look very promising, they are smaller than securities markets in more developed economies. Indian stock exchanges have in the past experienced substantial fluctuations in the prices of the listed securities, as mentioned hereinabove. The bourses also experienced the terrible Tuesday of 2008 when the benchmark Sensex fell by 11.53% plunging by 2029 points. Such fluctuations unduly impact the share prices of listed companies. 2. Sensitivity to the economy and extraneous factors. The Companys performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Company. 3. Political turmoil or terrorist attacks and other acts of Violence or war involing India, and other countries could adversely affect the financial markets, resulting in a loss of business confidence and adversely affecting the business, results, operations and financial condition. Concerns: 1. The Company is an investment company with income mainly from the dividends receivable on investments made and held by it in other listed and unlisted companies. The performance of the Company hence would depend on the performance of these investee companies. 2. The basic business of the Company is investing in stocks, shares and bonds. The value of these stocks, shares and bonds depend on the prevailing Stock Market scenario. The future success of the Company would depend on its ability to anticipate the volatility of the Stock Markets and minimizing risks through prudent investing decisions. Hence, volatility of the stock markets would be a cause of concern to the Company. Internal Control Systems and their adequacy: The Company maintains a system of strict internal control, including suitable monitoring procedures. Significant issues are brought to the attention of the Board of Directors. The internal controls existing in the Company are considered to be adequate vis-a-vis the business requirements. Human Resources: The Company is in the process of the formulation of the organization structure and putting in place the various human resources policies and assigning personnel for the same. Cautionary statement: Statements in the Management Discussion and Analysis describing the Companys outlook, projections, estimates, expectations may be forward- looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in Government regulations, tax laws and other factors such as litigation and industrial relations.