WF: Can you give us your perspective on some of the global events that seemed to have caused nervousness in our market - particularly the news flow from Greece, China and Dubai? There is a view that risk appetite globally is now declining.

Huzaifa: Without getting into any specific issues, basically all this turbulence which I am seeing in other geographies, whether it's sovereign related or any other issue points to a very simple fact that the global recovery is still not on a sustainable platform. For any recovery to sustain, you need sustainable amount of income growth. We have been saying all along that the global recovery is weak. We have been saying that commodity prices have gone up - not because of demand but excess liquidity. This has been corroborated over the quarters by looking at utilization levels of commodity manufacturers in the rest of the world other than China. Utilization levels are running way below where they could have been at an optimum. They are higher than what we went to at the bottom but that doesn't give us any comfort for they are still below where they should be. Under utilization of capacities will eventually create a pressure on prices.

The fact is that markets have delivered very strong returns in recent months and a round of profit booking has happened. The second issue is that as investors begin to understand that global recovery is still muted, their risk appetite reduces. Some investors take money back to their home market - US - which seems relatively more attractive than some European countries. This is also corroborated by the fact that the US dollar has been appreciating lately.

I can't see a correlation between why investors should exit India because of what is happening in Greece. The two are not correlated.

But, the point of risk appetite decreasing and risk aversion increasing is understandable. In 2008, the yields on the risk-free assets went down significantly as interest rates were slashed. Yields on risk free assets became far lower compared to yields on risky assets. When your yields on a risk-free 30 year bond have reached 2% - 2.5% and your PE is 8-10, your earnings yield was running at around 12% levels. In a situation of 2% versus 12%, something has to be bridged - as of today anyways the gap has got bridged. With PEs doubling, earnings yields have come down to 6% and interest rates have climbed to 4% - 5% levels. The gap has already narrowed and the risk appetite will therefore also reduce. That is what we are seeing in the markets today.

When investors move money from risky assets to risk-free assets at this margin, you will get bouts of market volatility.

WF: Your AIG India Equity Fund has always been strikingly different from many other equity funds. Your latest fact sheet suggests that automobiles is your number one sectoral exposure - again, not a common sight among most equity portfolios. Is there a conscious sector call here or are you very optimistic about individual stocks like Hero Honda and Maruti - your key holdings in this sector?

Huzaifa: It's clearly a bottom up call on these two companies that I like. I don't track sectoral exposure or deviations from benchmark - I focus only on bottom up stock specific calls.

I think these two companies are doing well; they have increased their capacity. I know a lot of people believe that the rural consumption story has probably peaked - I don't agree with that notion at all. When you talk about food inflation, the beneficiaries of higher prices are the farmers - the rural consumers. RBI's last report says India produces 70 million tones of rice. Even a 2 to 3 rupee hike in minimum support prices means Rs. 15,000 crore additional revenues to farmers - much of which will go to further fuel the rural consumption story. Take sugar - we crush around 250-270 million tones of cane each year. Again, a few rupees increase in MSP will result in large amounts of additional income to rural farmers.

Let's understand that 70% of India still stays in rural areas and companies are finding innovative ways of fulfilling their needs. I read something recently which said that DTH guys are now aiming at rural markets - because cable can't go there. And these are cable under penetrated areas. When DTH comes into rural homes, their households will suddenly see different kinds of products advertised - which will further fuel demand. Their aspirations are high - they are not poor. The same article mentioned that the top 15% of rural India - the rich farmers - is equal in size to the entire urban higher middle class.

Companies like Hero Honda and Maruti, with their very extensive network, are very well placed to feed this growing rural demand.

In terms of themes, we are overweight consumption, we are overweight infrastructure providers and we are underweight global commodities.

WF: Can you elaborate on infrastructure service providers?

Huzaifa: Companies like GVK, GMR, Container Corporation, NTPC are infrastructure service providers or developers. On the other hand, you have construction and engineering companies like L&T, BHEL etc. that can help set up or build the infrastructure.

Ultimately, pricing power lands up in the hands of a developer / service provider who owns a facility. An airport owner can charge for usage of his facility - there are not too many other airports in the vicinity anyways. A container corporation can charge a handsome fee to move a container because railways are short of capacity. Or a power plant can charge 5 to 6 rupees for electricity which is being produced at probably 2 rupees. Or a gas supplier in a metro can charge a hefty fee for just moving the gas in his pipelines. These are businesses with significant pricing advantages and are therefore valuable.

WF: Why are you underweight banks?

Huzaifa: There are concerns about under providing for NPAs and another concern is that NPAs are anyways going up - despite under providing.

WF: The differentiated top holdings of your portfolio have resulted in many advisors classifying your fund as a "high-risk, high-return fund". Some of the names in your top 10 do not find place in most other diversified all-cap/multi-cap funds. Returns have certainly been high - you have outperformed benchmarks comfortably. Do you agree that your portfolio is riskier than most because of the portfolio construct?

Huzaifa: This is a key issue for us. Somewhere in our industry there is probably a perception that if you buy index stocks, the portfolio is "safe". Globally, nobody evaluates portfolio risk by looking at the names in the top holdings. You look at quantitative measures like portfolio volatility etc- and then decide which fund is more risky.

Let me tell you about our Dublin domiciled India dedicated fund. We won the Thomson Reuters Lipper Fund Awards last year and won it again this year. It's been two years now since the offshore fund became eligible to be ranked (the fund was launched in September 2005) - and we won it for both these years. Similarly Morningstar, which rates funds from one to five stars based on how well they have performed (after adjusting for risk) in comparison to similar investments, has rated our offshore fund 5 star. Morningstar gives a 5 star rating to only the top 10% of funds in their respective category and keeps revising the ratings every month. Our offshore fund has maintained its 5 star rating every month since it became eligible to be ranked - without a break.

Ranking / Award Methodologies and Disclaimers:

Morningstar Rating Methodology:

AIG India Equity Fund has been rated 5-star by Morningstar. The Morningstar RatingTM is a quantitative assessment of a fund's past performance - both return and risk - as measured from one to five stars. It uses focused comparison groups to better measure fund manager skill. As always, the Morningstar RatingTM is intended for use as the first step in the fund evaluation process. A high rating alone is not a sufficient basis for investment decisions.

The Morningstar RatingTM for funds methodology rates funds based on an enhanced Morningstar Risk-Adjusted Return measure, which also accounts for the effects of all sales charges, loads, or redemption fees. Funds are ranked by their Morningstar Risk-Adjusted Return scores and stars are assigned using the following scale: Top 10%: 5-star; next 22.5%: 4-star; next 35%: 3-star; next 22.5%: 2-star; bottom 10%: 1-star. Funds are rated for up to three periods - the trailing three-, five-, and 10-years.

Lipper Award Methodology:

AIG India Equity Fund (UCITS

AIG India Equity Fund (a Dublin domiciled India dedicated offshore fund advised by AIG Investments, India) was awarded Best Fund over Three Years in the India Equity category in four countries - UK, Germany, Hong Kong and Taiwan at the Lipper Fund Awards 2009. AIG Global Asset Management Company (India) Pvt. Ltd. provides non-binding advisory services this fund.

The Lipper Awards highlights funds registered for sale in the respective country as of December 31, 2008 with at least 36 months of performance history as of the said date. For complete details on the award methodology, visit http://www.lipperweb.com.

The above views have been expressed by Mr. Huzaifa Husain, Head - Equities of AIG Global Asset Management Company (India) Private Limited.

These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. Parts of the views may be based on information received from sources we consider reliable. We do not represent that all of this information is accurate or complete, however, and it may not be relied upon as such. All opinions and estimates included in this constitute our view as of this date and are subject to change without notice. There is no assurance that any security discussed herein remains in the portfolio at the time you receive this information. Past performance is not indicative of future results. We are not soliciting or recommending any action based on this material. Neither AIG Global Asset Management Company (India) Private Limited (AIGAMC), nor any person connected with it, accepts any liability arising from the use of this information. While utmost care has been exercised while preparing this, AIG AMC disclaims all liabilities, losses and damages arising out of the use of this information. Recipients of the information contained herein should exercise due care and caution and read the Scheme Information Documents (including if necessary, obtaining the advice of tax / legal / accounting / financial / other professionals) prior to taking of any decision, acting or omitting to act, on the basis of the information contained herein.

AIG India Equity Fund: Scheme Classification: An open-ended equity scheme. Investment objective: The investment objective of the scheme is to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities including equity derivatives. Asset Allocation Pattern: Equities and equity related securities: 80%-100%; Debt and money market securities / instruments / funds: 0%-20%. The fund would remain fully invested upto 95% in equity and equity related securities and will have only 5% in short term debt and money market instruments to meet short term liquidity requirements of the scheme. Terms of issue: Units of the Scheme are being offered at NAV based prices. Scheme Information Document, Key Information Memorandum and Application Forms / Transaction Slips available at the ISCs / distributors. Load Structure: Entry load: N.A. Exit load: 1% of the Applicable NAV if redeemed within 1 year from date of allotment. No exit load shall be charged on Bonus units allotted and on units allotted on Reinvestment of Dividend. General Services: NAVs will be calculated and disclosed on all Business days.

Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme's objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting the securities market. Past performance of the Sponsor or mutual funds managed by the Sponsor or its affiliates does not indicate the future performance of the Scheme. Investors in the Scheme are not being offered a guaranteed or assured rate of return. The Scheme does not guarantee or assure any dividend and also does not guarantee or assure that it will make any dividend distribution, though it has every intention to make the same. All dividend distributions are subject to the investment performance of the Scheme. AIG India Equity Fund is the name of the Scheme and does not, in any manner, indicate the quality of the Scheme, its future prospects or returns. Investments in the Scheme will be affected by trading volumes, settlement periods, volatility, price fluctuations, inability to sell securities, disinvestment of holdings of any unlisted stocks prior to target date of disinvestment, credit risk and interest rate risk. Please read the Scheme Information Document and Statement of Additional Information before investing.

Statutory Details: AIG Global Investment Group Mutual Fund ('the Fund') has been established as a trust under the Indian Trusts Act, 1882, sponsored by AIG Capital Corporation (liability restricted to Rs. 1 lakh). AIG Trustee Company (India) Private Limited, a company incorporated under the Companies Act, 1956, with a limited liability is the Trustee to the Fund. AIG Global Asset Management Company (India) Private Limited, a company incorporated under the Companies Act, 1956, with a limited liability is the Investment Manager to the Fund.

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