Renaissance Investments Managers' India Next Fund to invest in equities

India witnessed just 3.5 per cent average growth in the IIP in five years from 2012-13 to 2017-18 against average 6.3 per cent in years before that since 1991 when economic reforms started

For many, macro-economic parameters have worsened in the recent past.

For instance, index of industrial production (IIP) growth was at a seven-month low in May, the consumer price index-based inflation rate stood at a five-month high in June and the trade deficit wound at almost a five-year peak in June.

Quite contrary to this, Renaissance Investments Managers has launched a hedge fund on the theme of India's economy at a time when foreign portfolio investors have become net sellers since the start of this calendar year. 

Simply put, a hedge fund is a pool of money that takes both short and long positions, buys and sells equities, initiates arbitrage, and trades bonds, currencies, convertible securities, commodities and derivative products to generate returns at reduced risk. As the name suggests, the fund tries to hedge risks to investors’ capital against market volatility by employing alternative investment approaches.

However, this hedge fund — India Next Fund — would invest only in equities, says its founder Pankaj Murarka. As to why is the fund so bullish on India when almost every macro-economic parameter is showing downturn, he says, "I believe the Indian economy is at its inflection point, where the growth has started to return. The reason for decline was two back to back failed monsoons in 2014 and 2015 and while we were recovering from it, we had demonetisation, RERA and GST. And we expect gains from these structural reforms in the coming 8-12 months."

Surprisingly, he assesses that India's economy had witnessed industrial recession for the five years — 2012-13 to 2017-18. When pointed out that industrial recession means that industrial growth has to be negative for at least two consecutive quarters, he differed from this definition, saying this applies to advance economies. 

India witnessed just 3.5 per cent average growth in the index of industrial production (IIP) in five years from 2012-13 to 2017-18 against average 6.3 per cent in years before that since 1991 when economic reforms started. 

"I look at it (industrial recession) differently. The definition cited often applies to advance economies, not India. It is fact that we have gone through industrial recession," says Murarka, who has experience in handling UTI Mutual Funds, Merrill Lynch and Rare Enterprises.  

But, the timing of the launch could be bad as there has been outflow of money by the foreign portfolio investors (FPIs) at record high recently and there is uncertainty due to upcoming assembly elections. To a question over this, Murarka says when the risk is higher or when the fear is higher in the equity market that is when you get the best price. "The point of highest pessimism is point of most favourable risk zone," he says. 

However, many believe that the economy faces headwinds though these may not be as strong as at the time of taper tantrum.

For instance, a study by Crisil says since the start of 2018, foreign investors in India have fled debt and equities.

Trade deficit has swelled and precipitated a fall in the rupee. 

The study “Ring fence, How fit is India to fend off 1,2,3 punches?” highlights troika of risks — asymmetry in monetary policies in advanced economies, elevated oil prices and trade wars. 

"While the oil price shock is a known devil with perceptible impact on current account deficit (CAD) and inflation, we are still struggling to get a hold on the other two, which do not have much precedence," it says.

The study says though most of India’s macro parameters have seen some strain lately, they also appear resilient when compared with the 2013 ‘taper tantrum’, and in better shape than other emerging markets to negotiate the latest onslaught of global risks.

"The worrying part, though, is that the quantum and complexity of these shocks are greater," it cautions.