Dear Investor,

We are pleased to present “NRI Espresso”, a handy newsletter just for our esteemed NRI investors for the month of April 2009. It is our constant endeavour to serve your growing information, investment and servicing needs and the newsletter is created just for this purpose. This newsletter will be a collection of relevant articles of special interest to you. These include latest news, events, regulatory changes, and information on product offerings. 'NRI Corner', an exclusive section has also been created on our website for your mutual fund information and investment needs.

1. Economy News

Infrastructure output up
Infrastructure sector output grew 2.2% y-o-y in February, above an upwardly revised 1.5% in January. Output rose an annual 7.0% in January 2008 and in the fiscal year 2007/08 output rose 5.6%.

WPI inflation just above negative
The WPI inflation rate fell to 0.27% y-o-y, the lowest annual reading in the history of the current series. The annual inflation rate was 8.02% during the corresponding week of the previous year.  

2. Mutual Fund & NRI News

SBI Mutual Fund Launches SBI Gold Exchange Traded Scheme (SBI GETS)
SBI Mutual Fund launched India's sixth Gold Exchange Traded Scheme. SBI GETS is a passively managed open ended mutual fund, which would invest in Gold and endeavor to track the price of Gold. The investment objective of the scheme is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical Gold , The New Fund offer will be open till 28th of April 2009 .

Monthly disclosure must for close-end debt funds
The Securities and Exchange Board of India (SEBI) made it mandatory for all close-end debt and interval funds to disclose their portfolios every month, reducing the disclosure period from six month earlier. The disclosure of the portfolio as on the last day of the month has to be made on or before the third working day of the succeeding month, according to the SEBI circular.

Investors rush in for Gold Exchange-Traded Funds
More and more investors are flocking to gold funds, with a meltdown in other financial instruments and lack of profitable investment options making them rediscover the traditional safety offered by the yellow metal. Specialist gold exchange traded funds (ETF), which allow investors to invest in gold without taking physical delivery of the commodity, have reported a surge in investment flows, their popularity gaining on the back of the recent steep rise in prices of the underlying physical commodity. ETFs allow investors to own units which can be traded on the stock exchanges, just like shares in companies. The five gold ETFs currently operating in the country have seen a nearly 151% year-on-year increase in net inflows so far this fiscal year, according to industry data. Rising gold prices at a time when most other asset classes appear battered partly explains the rush.

SEBI planning major reforms for Mutual Funds: Bhave
SEBI chairman C B Bhave said the market regulator is planning fundamental reforms for the mutual fund industry. Speaking at an economic convention organized by Indian Merchants' Chamber SEBI chief said the recent liquidity crisis faced by mutual funds is over. "But it has showed chinks in armours of mutual funds. Fundamental reforms of mutual funds are necessary. We are half way through it," he said.

3. Market Overview

Indian equities rose to the highest since January 09 as investors' spirits were lifted by FII flows with the support of rising monetary flexibility, lower interest rates and stabilisation of domestic credit market. BSE Sensex bounced back from a 3-year low of 8160.40 to above 10000 for a brief period. Sensex ended FY09 above a key support level at 9700, up 9.19% in the month. Nifty closed above the 3k-mark, gaining 9.31%. Sector wise, metals gained 23.54% during the month as base metal prices rose, followed by oil & gas, which gained 16.31%. Only FMCG ended in red, marginally down 0.34%.

Boosting the market was a positive run of portfolio inflows, a trend not seen only in Indian equities but also some other emerging economy markets. The further push to US lending and growth attempted by the Obama administration helped in some extent to prop up risk-appetite across the globe though firmer signals were awaited. Underlying doubts and concerns were reflected in the volatile nature of the stock indices.

Drop in inflation rate and the new LAF rate cut by the RBI gave no impetus to the market as investors looked for stronger push than a limp 50 bps cut that was already factored in. The spectre of fiscal deficit hurt sentiment, threatening to crowd out private investment. The bond market slumped under the weight of additional debt supplies in the remainder of the last fiscal, and the pile of borrowing likely in the coming several quarters given the widening fiscal gap. The yield on the 10-year benchmark bond (6.05% 2019) climbed by more than 100 bps to as high as 7.19%. The government forecast the fiscal deficit at 6% of GDP, much higher than an initial forecast of 2.5%. Planned borrowing touched 3.06 trillion rupees and the target for the new fiscal was set at 3.6 trillion rupees.

The rupee sank to record lows, closing in on 52.00/$ as the greenback traded at highs against majors. However, the rupee received limited reprieve owing to a brief but positive run of FII inflows. In crosses, the rupee ended the month sharply weaker.

Attention had turned towards politics by the end of March with a cursory glance at the scenario promising another fractured coalition at the Centre at the end of the five-phased general elections during April-May.

4. Fund Focus – SBI Gold Exchange Traded Scheme

Gold ETFs have started gaining prominence especially during these uncertain times when most of the other asset classes have not performed well. Gold ETFs offers investors an easy and convenient way to access the gold bullion market besides acting as an effective diversifier for your portfolio. SBI Mutual Fund has launched SBI Gold Exchange Traded Scheme (SBI GETS) on 30th March 2009, which would enable investors to invest in Gold in demat form without any hassles.

In an exclusive interview with Mr. Ritesh Sheth, Fund Manager, SBI Gold Exchange Traded Scheme (SBI GETS), he helps us demystify Gold ETFs. He also discusses the various benefits of investing in SBI Gold Exchange Traded Scheme (SBI GETS) and the outlook for gold going forward.

1. What are your views on commodities and gold specifically and Gold ETF as an investment option?
While the long term outlook on commodities is bullish in view of resource intensive growth of BRIC countries over the next several decades. However, the current downturn in global economy will keep the prices depressed in the near future.

Looking at the uncertainties in the global economy and financial markets, gold can be looked as an excellent hedge in the portfolio. There is a risk of de basement of fiat currencies in view of the way central banks are printing money. And in that case gold will stand out as best preserver of value. Due to very low correlation with other assets, it provides good diversification to the portfolio. ETF is the most efficient way of owning this asset hence we have launched SBI GETS (SBI Gold Exchange Traded Scheme).

2. What are the distinct benefits of investing in a gold ETF?
Gold ETF is a passively managed mutual fund scheme which aims to provide investors a means of participating in the gold bullion market without taking physical delivery of gold, and to buy and sell its units through trading on stock exchanges. Gold ETFs provide returns that closely correspond to the returns provided by physical Gold.

There are several benefits of investing in a Gold ETF. Gold ETF is also a cost effective and relatively cheaper way to participate in the gold bullion market, since the cost of purchasing and holding is much low as compared to physical gold. Also the investor is free from worries of storage and security, in case of a gold ETF. Besides, it is easy to operate for a retail investor, since the scheme will be listed on the stock exchange, providing liquidity.

3. What portion of asset allocation should be made in gold as an asset class?
Well it's an individual's call of 10% or 30%. Probably it also depends on the market scenario and a view on various other asset classes. On an average it can be around 10 -15% of the portfolio. Here we would like to highlight one point that we believe in. Gold for us is an asset that should be a part of the portfolio as a very good diversifier (it has very low correlation with other asset classes) and as an Insurance (hedge against world disorder and no other asset class performing).

4. What are the distinct features of SBI Gold Exchange Traded Scheme (SBI GETS)?
SBI GETS which would be managed by SBI Mutual Fund which has 20 years of investment expertise. It has various distinct features for its investors. The minimum subscription is kept at Rs. 5000 only, which would ensure participation from low income group also. Besides the fund would offer following benefits to investors:

• Low expense ratio of the fund
• The fund would endeavour to keep tracking error as low as possible by managing cash portion optimally
• Extensive distribution network
• Free DP account is offered by SBI
• Higher trading volume enables to partiipate in a better price recovery.

5. What are the factors that determine the movement of gold prices? Is there any correlation between the price of gold and other asset classes like equities and debt?
Like any other commodity Gold have its prices linked to its demand - supply equation. Though demand can be higher or lower, supply has been over the past decade stable or lower, due to its limited resource availability. This has helped to keep the prices higher on an average. Also, because of its limited resource availability, Gold has not lost its value over a period of time and so becomes an important asset as a hedge against inflation. So higher the inflation, higher the prices of Gold. Gold has an inverse correlation with currency, especially USD. Weakening currency or devaluation, Gold prices tends to remain higher, holding onto its value and premium of limited resource. Surely, there can be more qualitative factors too that affect the prices in short term like - safe haven, preserver of value, etc. As mentioned above, over the period of time Gold has a very low correlation with other asset classes - equities, debt or oil.

6. Are high prices of gold acting as a deterrent to people investing in gold? If so, would you buy gold now (under SBI GETS) or wait for the price to correct?
Higher prices of Gold, or a perceived peak is somewhat detrimental to investing in Gold at current prices or if not is still raising enough questions in ones mind of now or when? Our view is somewhat different. Firstly, what we are saying is just a small shift of habit of investing in physical Gold to paper Gold which has its own benefits. Secondly, one would have wondered about this question over last 3 to 5 years and would have lost a chance to compound his wealth by 20% annually on an average. Directionally we still believe Gold will sustain its current momentum till the world finds stability, growth and sustainability. We will not like to try to time the market, or rather lose any day of investing in Gold.

7. To optimally benefit from gold ETFs, what should be the time horizon for an investor?
On an average, the time horizon for any asset class for investment has to be minimum of 3-5 years. Also, a school of thought suggests certain asset classes to be a part of the portfolio always, though the allocation to a particular asset class will differ depending on the economic cycle and ones risk profile. Gold, according to us is one such important asset class that should be a part of the portfolio always. In current scenario, we would recommend a 15% allocation to Gold with a view of next 3 years minimum. In context of an Indian this should not be a question though, where Gold forms a part of ones networth for lifetime and as an asset is never to be sold.

8. Gold prices have fallen by an average 9% in the last one month. Does that affect the appeal of gold?
This is a welcome question in a situation where the only question asked so far was of higher Gold prices. Like any other commodity or asset class Gold too follows its path of highs and lows or correction for that matter. But prices at this level or higher, in our view, still doesn't take away the shine from Gold as an investible asset class. In the current scenario of economy and financial instability, we believe Gold will still be an important insurance in the portfolio. Also, few months down the line in view of global recovery and higher inflation or currency (USD) movement, Gold will act as a natural hedge. In short, given the current scenario, Gold is expected to be a good diversifier and preserver of value.

9. Is investing in gold ETF in the current market scenario advisable?
As a matter of fact, Gold always has to be a part of the portfolio. Recent past also suggests very healthy returns from this asset. Let's evaluate the current scenario which has probably two questions to be answered - asset class today against other investment avenues and at current prices. In a scenario of uncertainty in economy and financial markets as well as a risk of de basement of the fiat currencies, Gold becomes an important asset class today. Secondly, are the prices right? Two things that affect Gold prices apartheid from many things are inflation and currency movement, mainly USD. Our view is that globally inflation will be higher from current scenario of deflation (lower inflation) and weakening USD over next 6-12 months time. Both the scenario suggests rising Gold prices. Hence it is definitely advisable to invest in gold ETF at this point of time.

10. What is the short term and long term outlook on international gold prices?
In the short term, Gold will sustain its current momentum till world finds its new order of stability, growth and sustainability. In long run - we are all dead except Gold, which will neither perish nor diminish in value. Gold is for every occasion, every reason and for all seasons.

5. Feature Article – Rate Cuts -- Is the stage set for an economic recovery?

The consumer, the kind that typically watches the interest rate environment to extract the best deal possible, is likely to gain from the Reserve Bank of India's current stance on rates.

As the country welcomes a new government, following the forthcoming general elections, the man on the street is poised to adopt a discretionary spending strategy. The latter, to be driven by not-so-high oil prices (which has already prompted a decline in price indices), may well take sentiments to a higher plane.

As the average consumer has no doubt noted, inflation numbers in India have lately recorded a secular reduction on the back of lower commodity prices and duty cuts. In fact, headline inflation (Headline inflation is a measure of the total inflation within an economy and is affected by areas of the market which may experience sudden inflationary spikes such as food or energy) is expected to moderate, following easing commodity prices internationally.

At this point, let us briefly refer to the banking authorities' recent policy on paring rates and provide a vital crutch for investment/consumption. Remember, this came at a time when industrial growth was falling, and the services sector was not bringing in great cheer either. Rate cuts and tax sops were, therefore, a welcome step.

All said, the impact of lower inflation, stimulus packages and lower rates could well get factored in over the next few months. The market is waiting for further signals in this regard from banks.

Why should consumers be so sure? Quickly consider these trends:

• There is a revival of sorts in passenger cars and two-wheeler sales, following lower interest rates
• Home finance companies expect a modest turnaround in real estate, a sector that has bled in recent times, because lending rates have been rationalised
• Consumer spending is now distinctly discretionary, indicating a possible change in the consumption cycle

How does the inflation scenario look like at the moment? Just to give you an idea, the second week of March say the wholesale price index inflation stand at 0.27%, thanks to declining primary articles, fuel and manufactured products. This is partly attributed to reduction in international oil prices as well as in metal and other commodity prices. The April-June period would be the months to watch out for in this context.

Whether consumer behavior will be immediately impacted is a difficult call to take at this juncture. It can, however, be safely said that real estate and auto (two segments where buying decisions were postponed) are both waiting for good tidings.

Take real estate, for example. This is a sector that probably took the worst hit in the global meltdown, both here and in many other emerging markets. There is plenty of unsold real estate stock with developers even as you read this. Now, leading home finance companies have dropped rates, rendering housing loan deals more attractive for takers. After all, lower EMIs (equated monthly installments) are just more than a mere talking point; they actually make it easier on the consumer's wallet. The fact that home loan rates have been trimmed is grabbing mass attention all over, thanks to the kind of interest that the media is increasingly taking in the subject.

It is true that the country's economic growth story will not be the same this year. But if the Indian economy does grow at 7 per cent or so (which some quarters feel it should), the purchasing power of the consuming class will not really stagnate. In fact, it is hoped that demand growth will continue to drive the economy, albeit more modestly than before. A large part of such growth will stem from the rural markets, it is expected. And as experts of all hues are pointing out, rural consumption patterns, driven by FMCG, two-wheeler, fertilizer and tractor sales, will remain unharmed in the times ahead.

No firmer prediction on consumers' mind-set, however, can be made at this juncture without more concrete figures. The market nevertheless is waiting for activity to pick up on two key fronts: Credit offtake for banks and corporate spending.

Those who track the rate scenario more closely do know that short-end rates may well soften because of reasons stemming from liquidity and RBI policy actions. On the other hand, the general view on long-term yields is that the trend will become more palpable in the post-election period.

Clearly, the fiscal strategy followed by the next government will act as the most critical determinant here. Mind you, the new policy-making team at the very helm of affairs will be able to take advantage of reasonable oil prices (as indeed benefit from rather modest prices of other commodities).

Also, from a policy perspective, if the next government drags its feet over the issue of fiscal deficit, yields will fall, especially in the shorter end of the yield curve.

For those who are keenly watching the banking sector, a couple of points stand out. One, credit growth may not be very broadbased. Two, corporate balance sheets are, generally speaking, underleveraged than before. Banks, in a situation such as this, will have to carefully ascertain risks and manage them efficiently. Smarter recovery strategies will certainly help.

Some quarters are currently urging banks to bring down interest rates further, a move that they say will have a very positive impact on consumption patterns. Banks in India, it is being argued, are fairly well capitalised at the moment, above the regulatory minimum.

If inflation does trend down in the months ahead, is India heading for deflation? Astute economists and lay consumers would both like to see the new government tackle the issue with élan.

Disclaimer: This Investment update is for information purpose only and is not an offer to sell or a solicitation to buy any mutual fund units/securities. These views alone are not sufficient and shouldn't be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates included in this schemes guide constitute our view as of this date and are subject to change without notice. Neither SBI Funds Management Private Limited, nor any person connected with it, accepts any liability arising from the use of this information. The recipient of this material should rely on their investigations and take their own professional advice.

Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there is no assurance or guarantee that the scheme's objectives will be achieved. As with any other investment in securities, the NAV of the Magnums/Units issued under the scheme(s) may go up or down depending upon the various factors and forces affecting the securities market. Past performance of the Sponsor/AMC/Mutual Fund/Scheme(s) and their affiliates do not indicate the future performance of the Scheme(s) of the Mutual Fund. The names of the scheme(s) do not, in any manner, indicate either the quality of the scheme(s) or their future prospects and returns. For scheme-specific risk factors please refer to the offer document of the scheme. Please read the offer document before investing. Investment Objective: Magnum InstaCash Fund - Cash and Dividend Plans - (An open-ended Liquid Fund) - To provide the investors an opportunity to earn returns through investment in debt & money market securities, while having the benefit of a very high degree of liquidity. Magnum InstaCash Fund is only the name of the scheme and does not in any manner indicate the quality of the scheme, its future prospects and returns. Statutory details: SBI Mutual Fund has been set up as a trust under the Indian Trusts Act, 1882. State Bank of India ('SBI'), the sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the initial contribution made by it of an amount of Rs. 5 lakhs towards setting up of the mutual fund. Asset Management Company: SBI Funds Management Private Limited (A joint venture between SBI and Société Générale Asset Management) -191, Maker Tower 'E', 19th Floor, Cuffe Parade, Mumbai 400 005. Trustee Company: SBI Mutual Fund Trustee Company Pvt. Ltd. Mutual Fund investments are subject to market risks. Please read the Offer Document carefully before investing.