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Straight from the Specialists

Indian hedge funds get knocked down but get up again

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fortunes of hedge funds focused on India continue to twist and turn, with many plots and subplots. After witnessing widespread losses and heavy redemptions in 2008, Indian hedge fund managers bounced back remarkably to post a 50 percent return in 2009. They continued their good form in 2010, delivering healthy gains of 12 percent during the year.

But in 2011, the managers witnessed losses amid declining markets and a depreciating rupee. At the end of that year, many managers expressed confidence in the underlying market for the following year and predicted gains for the rupee by mid-2012 — both these predictions came to pass. The Eurekahedge Indian Hedge Fund Index was up 13.13 percent in 2012, making it the strongest regional hedge fund mandate for the year. Some of the funds even witnessed asset inflows in 2012 and early 2013, a rarity for Indian hedge funds since the financial crisis.

As such, Indian hedge fund managers started this year with their tails up, armed with strong returns and positive global investor sentiment. The managers witnessed healthy returns in January, helped by a rally in underlying equities as foreign investors poured more cash into Indian stocks. And just when you thought the sector was out of the woods, the positive run ended — most managers witnessed losses in February and March, finishing the first quarter in the red.

Investor reaction to the 2013-14 Budget was not very supportive, given that it did not include significant infrastructure development announcements. The second quarter was worse as the rupee declined, further adding to market losses suffered by managers. July and August witnessed a continuation of the negative streak, as the Reserve Bank of India’s (RBI) measures to support the rupee further hurt investor sentiment.

Dollar shock for Indian hedge funds

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

2011 has been an annus horribilis for Indian hedge funds. All hedge funds, with one exception, are currently in the red — the Eurekahedge Indian Hedge Fund Index was down 16.9 pct as of end-October and early reports suggest that things went from bad to worse in November.

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