The current economic slowdown may well have weighed on Indian hedge funds too.
A hundred dollars invested in them at the beginning of the year would have yielded investors less than ten cents (dollar returns 0.09 per cent) by October-end. Investors in Asian hedge funds would have made a little over 6 dollars (dollar returns of 6.1 per cent), shows data from hedge fund tracker Eurekahedge.
The Eurekahedge India Hedge Fund Index is made up of 17 funds with equal weights in the index. The Eurekahedge Asian Hedge Fund Index is similarly made up of 308 funds from across Asia. The Indian index had done marginally better than its Asian peers in 2018. The Asian index was down 13.39 per cent. The Indian index fell 12.83 per cent. India’s returns are also higher since inception in December 2003. It is up 178.4 per cent. It was 162.8 per cent for Asian funds.
Indian funds did better than Asian ones in only four out of the ten months of 2019 so far.
The underperformance comes even as global hedge funds have struggled to beat benchmarks. The Eurekahedge Hedge Fund Index which measures returns of funds across regions rose 0.31 per cent in October. This is lower than the benchmark MSCI ACWI’s returns. The latter is an index that looks to track equity markets across developed and emerging countries. It was up 1.93 per cent in the same period. A report from Eurekahedge said trade talks between the United States of America (US) and China played a role for gains in global equities.
“The resumption of the US-China trade talks resulted in a partial trade agreement between the two largest economies. The positive development prompted President Trump to postpone the scheduled tariff hike on Chinese goods, which boosted US and Asian equities during the month,” it said.
The United Kingdom underperformed among other major economies. The underperformance was despite the three-month extension for a plan for its exit from the European Union. A stronger pound is said to have contributed to the underperformance.
The outlook for India poses challenges to future outperformance.
“Despite much market optimism, presumably around policy interventions and guided by buoyant flows, India’s macro backdrop may be turning for the worse,” said the 27th November India Equity Strategy report about the second half of the financial year 2020; from brokerage firm Jefferies India authored by equity analysts Somshankar Sinha, Piyush Nahar and Pratik Chaudhuri. It added that a strong demand stimulus would be needed, and pointed out that growth was weak in the second quarter of the year (2QFY20).
“Indeed, revenues were already weak in 2QFY20….causing us to trim FY20 earnings by 5%, even with lower taxes,” it said. The government had cut corporate taxes earlier in the year.
The brokerage reiterated a defensive stance based on risks to earnings given current valuations.