Speaking to CNBC-TV18, Farhan Mumtaz, Hedge Fund Analyst at Eurekahedge, said that the Indian market has been underperforming other emerging markets and most managers who are investing specifically within India have reduced their exposures. And it is possible that they will remain very cautious about the Indian market at least for the short term.
Indian market has been in a volatile mood since the beginning of the year. There have been several concerns over India’s growth, which is getting derailed due to macroeconomic issues like inflation and interest rate hike.
In additional to that, a recent survey done by Merrill Lynch has pointed out that India is one of the least favoured emerging markets of fund managers, making investors more worried about the overall performance of the Indian market.
Speaking to CNBC-TV18, Farhan Mumtaz, Hedge Fund Analyst at Eurekahedge, said that the Indian market has been underperforming other emerging markets and most managers who are investing specifically within India have reduced their exposures. Hence, it is possible that they will remain very cautious about the Indian market at least for the short term.
“At the end of 2010, the size of the Indian hedge fund sector was about USD 4.5 billion. Right now, it is less than USD 3.5 billion. So, we have seen nearly about a billion dollar outflow in the first five months,” added Mumtaz.
Below is a verbatim transcript of Farhan Mumtaz’s interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: We have been hearing some concerning reports about how India is now the largest underweight for many investors and how they are looking to decrease positions from hereon. What exactly are you picking up from the numbers?
A: Right now the Indian market has been underperforming other emerging markets and most managers who are investing specifically within India have reduced their exposures. In fact, for some hedge fund managers, the exposure has actually gone into negative. For the time being, at least for the short term, they remain very cautious about the market.
Q: For the India specific products have you seen any outflows, money moving out of those funds in terms of redemptions?
A: So far this year we have actually seen outflows. At the end of 2010, the size of the Indian hedge fund sector was about USD 4.5 billion. Right now it is less than USD 3.5 billion, so, we have seen nearly about a billion dollar outflow in the first five months.
Q: There was some interest that picked up in the long short kind of combination products; do you have any details on how exactly the market made a position on India in terms of what their short exposure is right now?
A: Long short equity funds in India have traditionally been more long biased. However what we have picked up over the last couple of months is that most of the managers have started investing with a market neutral mandate. So, the short exposure has definitely gone up.
Q: Have you been able to figure out what is making fund managers negative on India? Is it that this market is not exhibiting any momentum which is important for the hedge funds or is it because of fundamental concerns that people are going underweight India?
A: Most of the managers have mentioned that fundamentals such as high inflation, high commodity prices as well as and the market volatility have not helped starting from January onwards. Because of this, most managers have maintained a very cautious view on India at least for the short term. their net exposures have gone down as well as increasing the level of the shorts.
Q: When you speak to some of the hedge fund managers, do you get the sense that they have just chosen to either move to more cash or move to another country fund?
A: That is actually quite true that a number of managers have reduced their exposure so they maintain. Even if they have not seen significant redemption pressure they do maintain high levels of cash but redemption pressure as such has been an issue for India because other emerging markets are providing better opportunities for managers at least in the short term.
Q: Where is the money going in? Do you have any specific sense of which emerging market funds or which emerging market is specifically drawing in most of the cash and where commodities are fitting in this scenario?
A: Overall, the hedge fund sector has actually attracted significant capital this year but most of that has been allocated to developed markets. In the first five months, hedge funds have attracted USD 85 billion out of that USD 78 billion has gone in to US and Europe.
Within emerging markets, Latin American hedge funds have attracted some capital while Asia ex-Japan hedge funds have also attracted about USD 2.5 to 3 billion. Within Asia ex-Japan, some money has flown to China as well as other funds which invest in the South East Asia mandate.
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