Hedge fund managers who typically frequent the same bars in upmarket areas of London, Hong Kong and Singapore greet each other with pleasantries that reflect their positions. One such pleasantry is "Short India" with beaming smiles that indicate a strong performance of their funds. Any fund manager not "Short India" is to be either excommunicated or sympathised with as that fund would be a severe underperformer.
Not so long ago, the same fund managers were greeting each other with "Long India" pleasantries that indicated strong performance of their funds.
Hedge funds have no loyalties and should not have any loyalties. Fund managers are paid for betting on the right trends and the more the leverage placed on a correct trend the more fees the fund manager gets paid. Obviously, fund managers betting on wrong trends lose assets.
The right trend now globally is "Short India".
India has provided great returns to bears across assets. Sensex and Nifty are down 10 percent, the rupee is down over 18 percent while bond prices are down 10 percent from levels seen in April-May 2013. On a longer term basis, Sensex and Nifty and bond yields have almost stayed flat while the rupee is down over 45 percent against the USD.
India can do nothing right now. Apart from economic issues of fiscal and current account deficits, economic slowdown, corporate and political scams there are the deep politically-motivated policies such as the Food Bill that was passed in the Lok Sabah on 26 August. The Food Bill is negative in terms of optics, with a higher subsidy bill and higher inflation caused by the government paying more to stock up on grains and other food articles. However, given administrative inefficiency, there is absolutely no certainty on whether even 25 percent of the ambitious project will see the light of day in many years to come.
On the social front, headline cases such as rape in Mumbai are fodder for India bears. Hedge fund managers get a glowing feeling that only a trader knows when he or she is in the money, when negative headlines come out on a day-to-day basis. True, issues of rape have no relevance to a position run by a hedge fund, but it all adds up to profits on short India trades.
Apart from the money managers, it is fashionable to criticise India across all media platforms. Criticisms on the web draws many comments and Facebook likes while prime time TV draws more viewers when there is debate about what all there is wrong with the country. Everybody wants a piece of India now, but nobody wants to own it.
Short India is making money now. The question is when will the tide turn and short-covering starts to take place. Given the issues surrounding the country, the only reason to cover shorts will be the levels of asset prices or fatigue in the "Short India" story. The country is definitely oversold at this point of time as everyone and anyone is "Short India".
Arjun Parthasarathy is the Editor of www.investorsareidiots.com a web site for investors.
Published Date: Aug 27, 2013 03:50 pm | Updated Date: Dec 20, 2014 09:57 pm