Western hedge funds are starting to take a more active role in India after they have felt neglected as minority investors. Now, hedge funds are moving in and using activism tactics to take a more prominent role in the businesses like they do over here in the US and other Western nations.
What better way to get the ball rolling than The Children’s Investment Fund Management LLP, a UK based hedge fund known for being an activist fund,; filing legal action against the Indian government in an effort to protect its investment in Coal India Ltd. The Indian government’s call to the coal industry to charge low prices has the fund irate because they say that it is hurting profitability and in turn hurting the hedge fund.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
Another example of hedge funds’ renewed activism was a New York fund called QVT Financial LP, who manages $5 billion, who took Zenith Infotech to court over bonds that the company did not repay last fall. Zenith, unfortunately, defaulted on $33 million worth of foreign currency bonds which were due to be paid on September 21st. Now, according to a lawyer that is involved in this case, the first default has triggered another default of $50 million which is due in August.
QVT Financial LP has seen this situation before. In 2011, they led a lawsuit against Wockhardt Ltd for not repaying bonds that were due because they had defaulted $110 million on. The point here is that Zenith has trouble coming their way.
Look, Indian companies would not need to deal with Western investors like this if they simply paid more attention to their finances. It is amazing to see how many companies could not repay their bondholders because they had defaulted on their debt. What is even more amazing is that these hedge funds still continue to invest in these companies. India is one of the worst performing emerging markets over the past few years and there are definitely better opportunities abroad.
In addition, there were rumors of a potential military coup on Tuesday night. This should definitely spook investors, especially if the military was to attempt a coup and succeed. One thing is for sure, you do not want to be invested with a company when that country is undergoing a coup or civil war, etc because that usually never works out for the investor.
I am not interested in Indian shares right now, I think you can find safer, better value abroad in the other emerging markets. India is a little hesitant on foreign investment, yet emerging markets rely on foreign investment, look at China.