SENSEX NIFTY
Oct 01, 2012, 12.42 PM IST | Source: CNBC-TV18

Expect EM funds to continue attracting capital: Eurekahedge

According Farhan A Mumtaz of Eurekahedge many fund managers have taken aggressive long portfolio positions for India. This long-only money is flowing into India because of attractive P/E valuations in Indian and emerging market companies.

Farhan A Mumtaz

Hedge Fund Analyst, Eurekahedge

More about the Expert...

Indian markets witnessed a hefty foreign funds inflow of about Rs 19,200 crore in September.

"Some of the money is coming from the hedge funds, but a lot of the inflows in Indian market and into emerging markets are coming from Europe and from the US," Farhan A Mumtaz, hedge fund analyst at Eurekahedge explained in an interview to CNBC-TV18.

According to him, many fund managers have taken aggressive long portfolio positions for India. This long-only money is flowing into India because of attractive P/E valuations in Indian and emerging market companies, he added.

The Indian markets will see more fund inflow over the next few months . With the risk on environment created by injection of liquidity by the US Federal Reserve and European Central Bank (ECB), Mumtaz sees emerging market funds and Indian hedge funds pulling some more money in the next two months.

Below is the edited transcript of Mumtaz's interview with CNBC-TV18.

Q: Give us your views on what you have made of this huge rally that the Indian markets have seen the outperformance vis-à-vis global markets and where the money has come in from this time around?

A: Let us just start off by exploring the hedge funds. The Asian hedge funds and ADR-focused hedge funds, they have not captured that much of the money, but they are focused on emerging markets and they are aggressively positioning their portfolios.

A number of managers have indicated that they are taking long positions in the market. So, some of the money is coming from the hedge funds, but a lot of the inflows in Indian market and into emerging markets is coming from Europe and from the US in the risk-on mode.

Q: What would be the colour would it be long only kind of money that is coming, if you say hedge funds are forming a small part of this gain?

A: Absolutely, a number of managers have indicated that they are taking aggressive long portfolio positions for India especially. So it is mostly long only money. It is coming from the western capitals where they are finding increasingly attractive P/E valuations in Indian companies and in emerging market companies.

Q: What about the rupee especially in the past week, it was a sudden incline that we saw or a steep decline in the dollar, clear outperformer the rupee compared to other Asians and emerging market currencies, have the hedge funds started dipping their toes there?

A: Absolutely, the rupee has been so volatile over the past twelve months; it had been expected to increase in value, but not as suddenly. A number of managers had indicated that they expect it to improve versus the dollar and versus other currencies.

Now, India especially like managers and other investors are looking for companies which offer high dividend yield and also high growth potential, so that they can get a diversified returns profile. We expect this inflow to continue over the next couple of months.

Q: In your conversation with clients what are you hearing about India dedicated funds and what kind of incremental flows or new inflows one can possibly see going ahead?

A: For the moment especially in 2012 year-to-date (YTD) Indians hedge funds have not attracted money. They have lost a little bit of money, but with the risk-on environment with Fed action and ECB, investors are increasingly looking to allocate their money. We expect emerging market funds and Indian hedge funds amongst them to attract some capital atleast in next two months.

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READ MORE ON  FII, hedge funds, long only funds, ECB

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