US-based Farallon lucky to walk away home with nothing

Even after rupee punishment, fund takes home the same amount, $200 million, that it had invested

Farallon Capital invested Rs 847.78 crore in seven Indiabulls ventures in the period between 2006 and 2008. At an average exchange rate of Rs 42  per dollar, it is safe to assume the US based hedge fund brought in about $200 million.  

The rupee was trading around the 44 levels in late 2006 but appreciated to sub-40 levels in early 2008, riding on huge dollar inflows in to Indian equities, both public and private.

On Sunday, Indiabulls said it paid Rs 1,172 crore to buy back the investment. Assuming the deal was executed somewhere during the last fortnight when the rate was around Rs 59 to a dollar, Farallon would get to take home roughly the same $200 million.

Thus, though the local firm paid 40% more in rupee terms, which translates in to a simple interest of about seven percent per annum, the return for the investor is zilch.

Yet, not many are as lucky as the US-based fund, which has barely managed to get its capital back.

The reeling rupee has cut deep into the portfolio of Foreign  investors in the stock market who neither have the built in safeguards such as put options and buy back terms that comes with private equity investments, nor have any hedging tools to cover a 55 percent currency fall in five years.

Even as the exchange rate hurtles towards the 65-mark, more and more portfolios are getting marauded. The Benchmark sensex closed at 18232 after two days of carnage.

But at the peak exchange rates of Rs 39 against the dollar in early 2008, the index could well be down to four digits. Some stocks have even breached the lows touched (in March 2009) in the carnage following the collapse of Lehman brothers.

On March 9, 2009, the Sensex hit a low of 8,160 points when the exchange rate stood at 51.88 rupees per dollar. Though the index closed at more than double these levels on Tuesday, five constituent stocks are already well below their 2009 lows in dollar terms.

For example, 100 Bharti Airtel stocks were selling at $566 on March 09, 2009. At today’s close they were worth $503, a fall of 11%.

However, the story is different in rupee terms. Bharti stock is still 8.45% above the March 2009 prices. Similarly, 100 Tatapower shares are today worth $116 down from $120 in March 2009, a fall of three percent.  Bharat Heavy Electricals and NTPC are the other stocks which are below 2009 lows.

The less talk about the smaller stocks the better as many of these are below their face values even in rupee terms. GAIL India, Reliance Industries, Sterlite and Jindal Steel & power are the other sensex stocks which are trading close to their 2009 levels in dollar terms. These stocks are trading at between 8-19% above the 2009 lows in dollar terms though in local currency prices they look much healthier.