Are long-only funds eyeing to exit India?

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Are long-only funds eyeing to exit India?

In its hay-day, the India growth story was a money-magnet no one could say no to. But now, it is being questioned by many large institutional investors. And both private equity and long-only funds are looking to offload their core holdings in India. Harish Rao and Ashmit Kumar of CNBC-TV18 have a report.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » ALSO READ See latest News about Max India See previous management interviews See what other Experts & Brokerages are saying about Max India Max India BSE | NSE 31/05/12 Are Mutual Funds betting on Max India? Other Stocks in this news Kotak Mahindra Bank | DB Corp | Amtek India | Vaibhav Gems | Bharat Forge | Pantaloon Retail (India) - B-DVR | Housing Development and Infrastructure | ICICI Bank |

In its hay-day, the India growth story was a money-magnet no one could say no to. But now, it is being questioned by many large institutional investors. And both private equity and long-only funds are looking to offload their core holdings in India. Harish Rao and Ashmit Kumar of CNBC-TV18 have a report.

Traders are a worried lot and this worry has become palpable on the street over the past few weeks. Just last week, a host of foreign brokerages revised their 2012 outlook for Indian equities downwards, saying they expected flat returns over the year. Why? Growing macro-economic headwinds, and of course, a 20% drop in the Sensex over the past 11 months is not helping either. That's why many traditional long-only funds and private equity players are trimming their Indian exposure.

"There has been a lot of selling by traditional investors in India that is emerging market funds or India-dedicated funds or even hedge funds," says Ridham Desai, managing director, Morgan Stanley (India). "The selling could have been on the magnitude of around USD 10-12 billion," he says.

Warburg Pincus is one such seller. Just last week, it sold nearly 6.5% stake in private insurance player, Max India to Goldman Sachs for Rs 308 crore. This is the latest in a string of deals which has brought down stake of the company from 29% to just 5.4%. The Goldman deal has fetched it a profit of Rs 500 crore when you take a stock split in into account, and it puts the value of its residual stake in Max India at Rs 270 crore. Warburg has also sold over 3% in Kotak Mahindra Bank , and completely exited DB Corp , Amtek India and Vaibhav Gems .

Janus Fund, which manages USD 141 billion globally has been thinking along similar lines. It sold over half of its 2.24% stake in Bharat Forge for a little over Rs 100 crore last week for a tidy profit and reduced its exposure to Pantaloon Retail DVR .

Vanguard Group is yet another player. It is learnt to have sold a large part of its holdings in HDIL and IB Real Estate, albeit at a marginal loss. But it cut its exposure to ICICI Bank for a profit.

Nonetheless, experts say there is still some hope for the India Inc.

"If we do not get into a crisis situation in Europe, then the likelihood is that flows will improve next year," Desai of Morgan Stanley says.

Some experts also see this current slump as an opportunity to buy Indian equities. They in fact predict handsome gains five years down the line.