India focused hedge funds are among the better performing funds and have produced nearly double the returns of the country's benchmark index Sensex so far this year, with assets exceeding USD 9.5 billion till August 2010.
The HFN India Index, which tracks performance and assets of 40 funds that invest primarily in India's markets and securities, was up 6.34 per cent this year, while for Sensex it was 3.25 per cent, hedge fund database HedgeFund.net said.
At the end of August 2010, HFN estimated that total assets in hedge funds investing primarily in India's markets were USD 9.53 billion and the India fund assets increased 17 per cent, or USD 1.4 billion, the report said.
This year's level is much below the 2007 levels, when hedge fund asset in India touched its record high of USD 18.74 billion.
But there has been an increase in capital flows into the region, as this year's hedge fund asset levels is nearly double than last year's USD 5.92 billion.
Before the financial crisis, India focused funds were among the fastest growing sub-sectors of the hedge fund industry, largely because of the fact that emerging markets were rapidly becoming less reliant on major developed markets for growth and India was a prime example.
However, the uptrend in the India focused hedge funds did not sustain during the down months compared to other country specific emerging market hedge funds, all of which are predominantly equity focused with a long bias.
Summarising the India story, the report said "the story from within India is similar to that of the pre-financial crisis; increasing independence from external economies for supporting rapid growth, but also a dependence on external sources of capital to drive spending."
"The planned upcoming Commonwealth Games in Delhi, and the troubles surrounding the preparations, encapsulate the India story well; a desire for growth constrained by its infrastructure," it added.
Among the emerging market fund groups, India focused funds are the most volatile. Russia focused funds appear to have been consistent, while Brazil focused funds have been the least volatile.