India's unique equity market structure in terms of ownership of assets makes it a favourite of hedge funds looking to make absolute returns.
India has close to 7,000 listed companies with a market capitalization of US$ 1.13 trillion, and over 100 companies over US$ 2 billion. For an emerging market, India shows signs of balance, and is well diversified in terms of sector exposure (see presentation). Trading volume is sufficient at 5% of free float but lacks the breadth common in more developed markets, with the majority concentrated in the largest names and index derivatives.
Just 45% of India's market capitalization is available for trading, and institutional investors control less than 30%. Foreign investors control less than 18% of the market and concentrate the majority of their ownership in 20 stocks, buying more of the same when they have inflows and selling the most liquid of these when they need to raise funds. The attached presentation provides a glimpse of the structure and how it permits creation of attractive absolute return strategies.