Mumbai – Hedge funds are running scared of governor YV Reddy. It is not because he is an inflation hawk. It is because his ‘no-surprises’ credit policy resulted in such a positive jump in thestock market that many hedge funds that introduced a short-bias in their strategy have had to unwind those positions and go back to long-only strategy in India.
As the name suggests, most hedge funds follow investment strategies that allow them to smoothen out volatility of their portfolio by using forwards or futures. These funds face two constraints inAsian markets. One, many markets such as Hong Kong and Singapore provide no single-stock future instrument to short  selling an asset who price is expected to fall  a stock. The other constraint isa bull market that has run for almost four years. When prices are rising and the expectation is that they shall continue to do so, shorting can be suicidal from a financial point of view.
This is the reason most funds have been following a long-only strategy. “Most hedge funds operating in India have bought with a three-year horizon in mind,†says a hedge fund advisor. When the marketfell in February though, many thought that the bull streak had snapped and the weakness would continue so they changed their strategy.
