Big Talk- Sanjay Sonthalia, AIGMF

‘We will invest our money in the fund’

Sandeep Singh

Posted online: Monday , May 07, 2007 at 1401 IST
Updated: Wednesday, June 29, 2005 at 1257 hours IST -->

The global financial powerhouses are flocking to the growing Indian mutual fund industry. Last month saw two big names, JP Morgan and AIG (American International group), unravel their plans for the Indian market and launch their maiden schemes. Globally, AIG provides insurance, retirement services, financial services and asset management, managing $670 billion of assets as on December 31. In India, AIG is already present in the insurance space, through its twin tie-ups with the Tata Group. And now, it’s entering mutual funds. Saurabh Sonthalia, chief executive officer, AIG Global Asset Management Company (India), feels India is a promising market, with good returns potential. In an interview to Sandeep Singh, Sonthalia explains what is different about AIG, the group’s plans for India and why they believe in the India story.

There are so many fund houses and equity funds in the market. And their number is only increasing. Why should investors consider AIG?
Three reasons. One, AIG will also be an investor in the scheme, and invest its own money. We will have to work to generate returns for our own money, which should build trust among investors, as our money is invested with theirs. Two, easy sharing of information globally. We have a proprietary tool called EPIC (equity platform for investment communication), which disseminates all global market-related information to all our investment experts simultaneously. Three, our equity fund is a scheme for all seasons. We won’t be limited by any investment style, and our fund manager will have flexibility to work as the market behaves.
After this equity fund, what next?We want to be a full-service fund house offering services like mutual funds, hedge funds, private equity and portfolio management schemes (PMS), among others. We have capabilities across a diverse variety of product categories — debt, equity, real estate, commodities, structured products and more. We will keep bringing relevant products into the market.
But is there enough space for so many fund houses?
There is. The industry is growing and so is the number of new investors. Banks and other financial service players are expanding their distribution networks. They are helping people understand the product, and are bringing in more investors.

What is about India that gives you such confidence to grow your business?
We are very bullish on India. The Indian economy has moved to a higher growth curve, and is capable of growing at 8 per cent a year for several years to come. If the seventies belonged to Japan, the eighties to the US, the nineties to China, this decade is India’s.
Our manufacturing has become world-class. Time was when Indian companies were protected from outside competition, but now they are going out and competing against foreign companies. The government too is spurring infrastructure development.
About 90 per cent of the Indian economy is driven by domestic demand. The Rupee is getting stronger, which will reduce the country’s import bill, especially in oil, and lower inflation. An appreciation in the Rupee will also boost FII investments, as global investors want to invest in a stronger currency — they gain with an appreciating currency.
There is a risk of high inflation and high interest rates dragging down growth rates.Inflation is a part and parcel of high growth. I feel what the RBI has been doing to moderate growth and inflation is fine. The economy was getting overheated and asset bubbles were building up. The RBI is trying to ensure that the situation doesn’t go out of control.
As far as the effect on growth goes, the return on equity (RoE) for Indian companies is about 20 per cent. Companies are cash-rich, which reduces their dependence on borrowings. Even if they borrow at higher interest rates, their RoE remains high and, hence, they still add value. Also, the large companies have access to foreign markets, and may not be that affected by higher interest rates here.

But won’t demand for goods and services get impacted because of higher interest rates?
We remain bullish because of the cycle of growth. There is a demographic dividend in the form of a large population in the working group. As more jobs are created, their earning and spending capacity will increase, which will create its own momentum. By raising interest rates, the RBI is trying to rein in speculative demand.

What about current equity valuations? Is the market fairly valued?
We are not overvalued. In the last year, earnings have grown well, while the PE of 27 of the 30 Sensex stocks has either fallen or is the same. That tells we are fairly valued.

http://www.expressmoney.in/news/We-will-invest-our-money-in-the-fund/86080.html