Carson Block, founder of Muddy Waters Research, is exploring the possibility of launching an India-focused investment fund, potentially employing either a long-only or long-short strategy. In a recent interview in Mumbai, Block confirmed his interest in the Indian market but explicitly ruled out activist short-selling as part of the fund’s approach.
Table Content:
Block stated that the decision between a long-only and a long-short strategy is still under consideration. He acknowledged the potential for a long-short portfolio with approximately 20 short positions, each representing 1-2% of the fund. However, he also suggested that a long-only approach might be more suitable in the current market environment. The final structure of the fund will depend on further analysis and market conditions.
This potential venture follows Block’s recent establishment of an investment vehicle in Vietnam, built upon a pre-existing long-only position held for several years. He indicated that investor interest in a similar India-focused fund has fueled his current exploration. This interest comes as Indian markets experience a significant correction, with benchmark indices like the BSE Sensex and NSE Nifty 50 down over 14% from their September peak. Foreign investors have reacted to concerns about weaker economic growth, projected to be at a four-year low in 2024-25, by selling off $24 billion in Indian stocks between October and February.
Navigating India’s Investment Landscape: Taxation and GIFT City
While short-term market volatility won’t deter Block’s plans, India’s complex tax policies present a significant challenge. One option under consideration is leveraging India’s tax-neutral zone, GIFT City (Gujarat International Finance Tec-City). This strategically located hub offers streamlined regulations and tax benefits to attract global capital. However, Block acknowledged practical hurdles related to talent acquisition and retention within GIFT City. The availability of skilled professionals and the feasibility of establishing a strong team in this location remain key factors in the decision-making process.
Contrasting Investment Perspectives: China vs. India
Known for his skeptical view on China, Block believes Western investors continue to underestimate the inherent risks in the Chinese market, despite recent rallies in Chinese equity indices driven by technology stocks. He cautioned against long-term investments in China, suggesting a short-term approach might be more prudent given the current geopolitical landscape.
In contrast, Block sees India as a promising “growth narrative” for Western investors in the coming years. He perceives lower geopolitical risks in India compared to China, making it a potentially more attractive destination for long-term capital allocation. This optimistic outlook, coupled with investor suggestions, positions India as a compelling investment opportunity for Block and potentially for other global investors seeking emerging market exposure. Block anticipates that India’s growth story will unfold in the next few years, potentially attracting significant investment capital.
