Hedge funds take a hit after Budget

The 1,400-point-plus rally after the Union Budget has caught hedge funds on the wrong foot, say market people. A number of large hedge funds and foreign institutional investors had gone short on the Indian market before the Budget. However, when the market turned around, they were forced to cover their shorts, that too at a loss of five-six per cent. "Domestic entities, including fund houses, who had kept their faith and invested consistently have come up trumps after the Budget," says a fund manager.

Fund house takes a 25% haircut on downgraded debentures
A leading mutual fund house, which held a significant amount of debentures of a recently downgraded commodities major, sold a part of the investment at a loss of 25 per cent. The deal was struck on BSE's debt platform last week and debentures with face value of Rs 100 each were sold at Rs 75 each. The fund house informed its distributors about the deal to allay apprehensions. "The fund house has told distributors that it has infused liquidity in the schemes of over Rs 500 crore through the part-sale of the papers," says an sectoral player.

Traders build short positions in banking stocks
Defying the positive market sentiment, savvy investors have built up short positions in banking stocks, betting that last week's rally would be short-lived. These traders believe that banking stocks may soon start correcting as hopes of an out-of-turn rate cut by the central bank are fading. "RBI (the Reserve Bank of India) had cut rates the very next day after last year's Budget. If the rate cut was to happen, it would have come by now. The hopes are now fading," said a source. Banking stock indices are up over 10 per cent last week against seven per cent gain in the benchmark Sensex.