Why Foreign Investors are Why Foreign Investors are Smarter than Indian Investors?Smarter than Indian Investors?

Samir AroraSamir AroraHelios Capital ManagementHelios Capital Management

December 2010December 2010

Annualized returns( in USD)#

ytd 1 yr 3yr 5 yr 10 yr 18 yr*

MSCI INDIA 11.0% 14.9% -5.8% 16.8% 16.3% 10.0%

MSCI CHINA 3.1% 3.5% -9.1% 18.7% 11.5% -2.7%

S&P500 5.9% 7.8% -7.3% -1.1% -1.1% 5.5%

MSCI Emerging markets 8.7% 12.9% -4.7% 10.0% 12.7% 7.0%

MSCI - AsiaPac Ex japan 7.7% 11.5% -5.8% 8.8% 9.9% 5.2%

* from 01/01/1993

# till 30th Nov, 2010

What is your horizon?

Source: Bloomberg

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ytd 1 yr 3yr 5 yr 10 yr 18 yr*

NIFTY (INR) 12.7% 16.5% 0.6% 17.2% 16.5% 12.2%

GOLD (INR) 24.6% 15.8% 27.0% 22.9% 17.5% 10.5%

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What is your horizon?

* from 01/01/1993

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FIIFII Mutual Mutual InsuranceInsuranceFlowsFlows Fund FlowsFund Flows Flows Flows

1994 to 1999 9.1

2000 1.5 -0.2

2001 2.7 -1.0

2002 0.7 -0.6

2003 6.7 0.1

2004 8.8 -0.2

2005 11.0 3.0

2006 8.0 3.5

2007 17.8 1.7

2008 -12.8 3.5* 13.6

2009 17.6 -1.2 7.0

2010YTD 28.9 -6.3 1.5

Total: 90.9 2.3

* 1.9 billion in January 2008

Indian Investors: Where the H... are you?

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Households Balance Sheet

As of March 2009As of March 2009 US$bnUS$bn % Share% Share

Physical Assets 1084 51.2%

(including gold, property & household investments in small business)

Financial Assets 1316 62.1%

Currency 135 6.4%

Deposits 600 28.3%

Contractual savings 378 17.8%

Claims on the Govt. 123 5.8%

Equities 80 3.8%

Financial Liabilities -281 -13.3%

Trade Debt 4 0.2%

Financial Liabilities -285 -13.4%

Net Financial Assets 1035 48.8%

Total Assets 2118 100.0%

Source: RBI, Morgan Stanley Research

Country Weight (%)Current

Market Cap.(US$ Bn)

Free Float Market Cap.

(US$ Mn)

GDP

(US$ Bn)

Free Float % of Market

Cap.

China 18.0 3,546 657 4,909 19% Brazil 16.4 1,484 600 1,573 40% Korea 13.5 994 494 833 50% Taiwan 10.4 780 382 379 49% India 8.3 1,647 303 1572* 18% South Africa 7.5 474 274 288 58% Russia 6.1 589 224 1,229 38% Indonesia 2.4 332 88 540 26%

Source: FacSet, M SCI, M organ Stanley Research

*Please note F11 GDP M organ Stanley Estimate

GDP estimates for EM and constituents by M SCI as of 31st Aug 2010

Major Country Weights in MSCI EM (Emerging Markets) Index

FIIs systematically underweight India due to flawed Index

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EM (Emerging Markets) Brazil China India Korea RussiaSouth Africa Taiwan

EM Overall

Generically Low P/ E Sectors Energy 22.8 17.2 13.6 2.7 55.4 10.0 0.8 14.2 Materials 25.1 5.8 10.9 14.3 14.2 26.2 12.7 14.5 Semiconductor and Semiconductor Equipment

0.2 20.4 23.8 5.3

Technology Hardware 1.2 4.1 33.7 4.347.9 24.4 24.5 41.5 69.6 36.2 71.0 38.2

Generically High P/ E Sectors Consumer Staples 8.6 6.1 5.8 4.9 3.2 5.7 1.8 6.8 Health Care 0.9 3.7 0.5 2.1 0.8 Software Services 1.8 3.8 16.5 2.5 0.1 2.7

10.3 10.8 26.0 7.8 3.2 7.8 1.9 10.3

Others Financials 26.4 37.0 28.4 16.3 14.8 25.9 15.7 26.0 Consumer Discretionary 4.8 5.7 4.8 14.2 12.6 3.2 6.8 Telecom Services 2.4 12.3 0.7 2.8 6.6 13.0 4.4 8.0 Utilit ies 5.0 1.9 5.4 1.7 5.7 3.5 Industrials 3.2 7.8 10.3 15.6 4.5 3.8 7.2

41.7 64.8 49.5 50.6 27.2 56.0 27.1 51.5

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

%

India has a much more attractive universeIndia has a much more attractive universe

Sectoral distribution of various EM countries

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Market Cap Growth Decomposition

As % of Market ImpliedGlobal cap Cap EPS Valuation FX new(20 years) CAGR (real) issuance

Australia 2% 3.8% 2.1% 1.0% 0.0% 0.7%

Brazil 3% 7.2% 4.5% 0.3% 1.0% 1.3%

China 28% 11.5% 6.8% 0.0% 2.3% 2.0%

France 3% 5.7% 2.2% 2.6% 0.0% 0.9%

Germany 2% 4.1% 1.3% 2.5% 0.0% 0.3%

Hong Kong 1% 5.0% 3.5% 0.7% 0.6% 0.1%

India 5% 9.2% 6.4% -0.4% 1.9% 1.1%

Italy 1% 6.0% 1.1% 4.4% 0.0% 0.4%

Japan 3% 2.1% 0.5% 1.5% 0.0% 0.1%

Korea 2% 5.5% 3.0% 1.3% 0.7% 0.5%

Mexico 1% 7.3% 4.3% -0.1% 1.0% 2.0%

Russia 4% 10.2% 3.6% 2.4% 1.6% 2.2%

Singapore 1% 4.1% 3.0% 0.3% 0.3% 0.4%

Spain 1% 3.2% 0.6% 2.3% 0.0% 0.3%

Switzerland 1% 2.8% 1.8% 0.8% 0.0% 0.1%

Taiwan 1% 5.0% 3.0% 0.5% 0.7% 0.7%

United Kingdom 3% 3.7% 2.2% 1.3% 0.0% 0.2%

USA 23% 4.6% 3.0% 1.3% 0.0% 0.2%

India: 3rd biggest market in the world by 2030

Source: Goldman Sachs Global ECS Report, Sep 2010

India’s seductive growth prospectsIndia’s seductive growth prospects

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• Demographics alone may contribute about 4% of annual GDP growth

• India is likely to provide the largest increase to global labor force – estimated an additional 110 m by 2020

• Key trends driving the labor force are: urbanization, more women, large increase in the 30-49 age group.

• Age structure is favorable to flows into equities and bonds, and less favorable to bank deposits

• Spending on services such as healthcare and education may increase 5-fold

• Manufacturing sector has the potential to create the necessary jobs due to various factors

Indians are missing their own story

Demographics: Powerful winds to take India higherDemographics: Powerful winds to take India higher

Source: Goldman Sachs , Global Economics Paper No: 201, July 2010

Indian Market: More up than down

SENSEX RETURN (%) SENSEX RETURN (%)

Positive Years: 21 (66%)Negative Years: 11 (34%)

2011YTD 12

2003 -12 2008 20

2002 -4 2007 16

2001 -28 2005 16 2010 81

1999 -4 1998 16 2006 74

1997 0 1996 3 2004 83

1995 -14 1990 9 2000 34 1994 66

1988 -22 1984 16 1991 50 1992 267

2009 -38 1987 -11 1982 26 1985 44 1989 79

1993 -47 1983 -3 1980 29 1981 35 1986 62

Year % Year % Year % Year % Year %

-30 to -60 -30 to 0 0 to 30 30 to 60 >60

Percentage Total Return Range

Note: Return is FY Ending.

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Investment Strategy: Invest in “Non Zero Sum, under penetrated” themes

“NON ZERO SUM” THEME 1: “NEW” For Private Sector / Compete With Government Of India

India has allowed privatization of sectors w/o privatizing its incumbent government owned companies

Allows private sector companies to win at the cost of government owned companies due to better manpower, product, customer experience, technology, etc

Major Sectors: Infrastructure, Financials (Banking, Insurance), Healthcare, Education

“NON ZERO SUM” THEME 2: Factor Cost Advantage

Capitalize on India’s “Global competitiveness”

In these sectors, Indian companies do not yet compete with each other

Major sectors: IT, IT Services, Contract Research, Auto Ancillaries, Apparel Mfr.

“NON ZERO SUM” THEME 3: Demographic / Lifestyle Changes

Invest in fast growth “New for India” secular themes

Major sectors: Air conditioning, Wealth Management and Financial Products (incl Stock Exchanges), Mortgage, Retail, Tourism, Cable/Satellite TV, Leisure, Vocational Education, Gaming, Liquor, Branded goods.

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Mutual Fund Performance

Total Return Annualized Return

Aug 03 - Sep 09

Inception - 31st Jul 03*

Fund BSE 200

360% 344%

972% 37%

Fund

BSE 200

28.1%

27.4%

38.2%

4.3%

Total 4827% 507%33.5%

14.3%

* Samir Arora was the Manager of the Fund from inception in March 1996 to July 2003* Alliance Capital sold its Funds to Birla Sun Life Mutual Fund in 2005