The Hindu Business Line : Positive sentiment may continue

IN HAPPY MOOD: A file picture showing investors discussing happily. Last week, the BSE Sensex moved past the 14K-mark but closed the week at 13908.58. - A Roy Chowdhury

Mr Vikram Pandit, a high-flying Wall Street banker, is the new chief of Citigroup's alternative investment division. Citgroup has also bought his hedge fund, Old Lane, which has investments in, and a clear focus on India. Old Lane is understood to have more than $4 billion in assets under its management.

The move by Citigroup, which is planning aggressive expansion in India, has a clear reference for Dalal Street's flow trend. It is also a pointer as to how the serious alpha (an extraordinary return) seeking investors are repositioning themselves for the Indian equities.

Already no less than 50 per cent of the overseas flow is from hedge funds. Indian stock market has established itself as the largest for single stock futures in the world. It has a developed derivatives market in index futures too. These provide a hedging possibility not available in other emerging markets. For instance, the market capitalisation in China relative to its GDP is lower than that in India.

Indian market, now at around 14k, continues to be at a stage where liquidity draws more liquidity. But the investment strategies are undergoing a change behind the media glare.

The lure of India growth story initially brought in hedge players who claimed to have raked in 9 to 10 per cent returns per month in the last couple of years. The bandwagon effect that one saw in 2005-06, is, however, gradually giving way to more discerning and calculated methodology as in 2007 many of the first time investors are finding it difficult to sustain returns level with a quick get-in and get-out strategy.

A set of new international fund houses are planning to set foot on Dalal Street. A handful of them are hedge funds, which have been active through participatory notes. But indications are that a slew of long-only players are also in the queue. This year may see the likes of Nomura make their appearance on the horizon despite concerns over valuations getting stretched.

Interestingly, the old school practices like value investing and stock picking are being rediscovered for investments in India.

The comparative comfort and safety level being higher, the Indian equities are being valued more fundamentally than before as a long-term bet.

In the short term, things seem to be shaping well for the sentiment. It would not be surprising if the RBI intervenes to smother the appreciation of rupee. Sooner than everybody expects, the central bank may also take steps to rein in ECB and overseas loan flow. If these happen, then it would boost the sentiment, particularly for IT stocks, further for the near term.

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