INDIA-An Attractive Investment Option for Hedge Funds:
ECONOMIC FORCES:
India is the largest market for single stock futures in the world and has a well developed derivatives market in index futures and options. This gives hedging possibilities
not available in other emerging markets. There is also enough liquidity in the big stocks for domestic investors to sell short. Even though there are restrictions, these are less binding than in other emerging markets.
INFRASTRUCTURE:
In comparison to China, where stock markets are not well developed and company information is relatively opaque, India has much of the necessary institutional framework for hedging, including a regulatory regime and good information disclosure standards. Investors look at multiple markets around the world. There is a sense that the changes taking place in India are going to result in superior performance in the economy, and that the corporate sector will be a big beneficiary. Now, obviously the Chinese economy is larger, but the capital markets are better developed in India.
RISK MINIMIZATION:
Hedge fund companies can take advantage of the expanding phase of the Indian business cycle. They are going there with the idea that they'll get extraordinary returns, and of course with India being a growth story, those returns are definitely possible.
INDIAN BUSINESS ENVIRONMENT
Culture:
India is a relationship-based society. If you want to do deals, you need to know the
people. In places like India it is best if a hedge fund company has someone on the
ground there in order to get a sense of how business is run in India, and to get local
information. Ideally the fund should hire people who have worked in corporate India.
Red Tapism:
The SEBI and RBI are posing restrictions on the operation of hedge funds in
India. Whereas SEBI has introduced various parameters for selective entry of
hedge fund companies, RBI, in the monetary policy review has shown concern
over the arrival of hedge funds in the country.
Strategies for Investment-Fundamental Analysis:
In the U.S., fundamental analysis, where you study a firm closely, decide it may
be undervalued, and then take 10% equity, hold and sell --is largely dying out,
and the amount of money to be made is limited. However, in India, people feel
there are still a lot of fundamental plays, since the market is more inefficient.
That is predominantly the form of investment that everyone does. It is essentially
all about who is a better stock picker.
ECONOMIC FORCES:
India is the largest market for single stock futures in the world and has a well developed derivatives market in index futures and options. This gives hedging possibilities
not available in other emerging markets. There is also enough liquidity in the big stocks for domestic investors to sell short. Even though there are restrictions, these are less binding than in other emerging markets.
INFRASTRUCTURE:
In comparison to China, where stock markets are not well developed and company information is relatively opaque, India has much of the necessary institutional framework for hedging, including a regulatory regime and good information disclosure standards. Investors look at multiple markets around the world. There is a sense that the changes taking place in India are going to result in superior performance in the economy, and that the corporate sector will be a big beneficiary. Now, obviously the Chinese economy is larger, but the capital markets are better developed in India.
RISK MINIMIZATION:
Hedge fund companies can take advantage of the expanding phase of the Indian business cycle. They are going there with the idea that they'll get extraordinary returns, and of course with India being a growth story, those returns are definitely possible.
INDIAN BUSINESS ENVIRONMENT
Culture:
India is a relationship-based society. If you want to do deals, you need to know the
people. In places like India it is best if a hedge fund company has someone on the
ground there in order to get a sense of how business is run in India, and to get local
information. Ideally the fund should hire people who have worked in corporate India.
Red Tapism:
The SEBI and RBI are posing restrictions on the operation of hedge funds in
India. Whereas SEBI has introduced various parameters for selective entry of
hedge fund companies, RBI, in the monetary policy review has shown concern
over the arrival of hedge funds in the country.
Strategies for Investment-Fundamental Analysis:
In the U.S., fundamental analysis, where you study a firm closely, decide it may
be undervalued, and then take 10% equity, hold and sell --is largely dying out,
and the amount of money to be made is limited. However, in India, people feel
there are still a lot of fundamental plays, since the market is more inefficient.
That is predominantly the form of investment that everyone does. It is essentially
all about who is a better stock picker.
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