The Hindu Business Line : Sideways movement likely to continue

Mr Rahul Saraogi was in Chennai last month. This Ivy League-educated fund manager runs a long-short India-dedicated fund Atyant Capital out of the US. He was here to cherry pick a few mid- and small-cap stocks. It is interesting to note what he wrote from Chennai to his investors.

"We picked a standalone refiner as the best vehicle to play the refinery cycle in January... We were able to enter it at Rs 95 in January and have pared down 75 per cent of our position at Rs 148. While I believe that the fundamentals can justify Rs 250 valuation for the stock - I think that the momentum play may not be as strong and our capital can be better deployed."

Different stroke?

Atyant invests through a SEBI-registered sub-account.

Take a sneak peek into the insight of another group of hedge funds from Avatar Investment Management (AIM), which is also active here through a sub-account. AIM has three India-focused funds. One of them is managed with an absolute return principle and whose principal is protected. It follows strategies such as cash and carry as also basis trading

According to its India advisor, Mr Pashupati Advani, "India has a robust single stock futures market, which provides liquidity and thus this strategy". Another is a long/short equity fund, with the bulk of its investments in very liquid stocks and all of its investments in the top 500 stocks. The third one is a private equity fund, investing in less liquid stocks that are not in the top 500. This fund also invests in real estate. The investors do the country allocation and the advisor tries to maximise risk-adjusted return.

"Our longs tend to be held for significantly long time periods, as we are making stock-specific picks. Our shorts are primarily in single stock or index futures and thus have to be rolled every month. We have a risk management criterion for liquidity that would preclude us from getting trapped in illiquid assets in the Opportunities Fund (long/short)," Mr Advani recently told Eureka Hedge, a global hedge fund tracker.

Boyer Allan Investment Management is another registered sub-account player, whose India fund has earned 12.14 per cent return last month and was among the top three European hedge funds in performance.

Hedge funds are still not whole-heartedly encouraged in India. But, they are there and here too. Halbis has launched a new Cayman Island-domiciled fund - Halbis India Alpha Fund on April 2, 2007. The US and Cayman Island domiciled India Performance Fund was launched in February this year.

Capvent, another hedge fund, plans to invest $150 million a year in India, of which 25 per cent would be through co-investments, a relatively new investment concept for Dalal Street.

Short-term outlook

The Indian equity market appears to have reached an inflexion point as the revaluation exercise and deployment issues have not been sorted out fully by the lead investors. The current sideways movement is an aggregation of lack of directive call. However, signals from the weather god about the movement of monsoon clouds and the remaining corporate results in the next few weeks would shape up a medium to long term strategies for the market makers.

Till then, movements on the key indices may be range-bound. However, select mid- and small-cap stocks may see improvement in the interim period.

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