For much of the past decade, HSBC's star portfolio manager, Sanjiv Duggal, has been a major influence on India's stock market, directing the fortunes of the biggest India-focussed equity fund and winning a huge investor following.
That hold, however, is steadily slipping as the $5.2 billion HSBC GIF Indian Equity fund suffers from poor returns and sustained investor withdrawals with some big bets turning sour, opening the door for rival funds to benefit.
The go-to fund since 2003 for overseas investors wanting exposure to Asia's third-largest economy has now seen net outflows in 16 of the last 19 months, with cumulative outflows since the start of last year hitting $1.2 billion, research firm Morningstar estimates.
Performance has also suffered, with the fund lagging its peers and benchmarks over various time periods from one week to five years until August 19, according to data from Thomson Reuters Lipper .
It was down 28.5 per cent in 2011 until August 19, when the BSE Sensex shed 21.3 per cent.
Morningstar has downgraded the fund's quantitative rating and is closely monitoring its qualitative rating, said the research firm's London-based analyst Chetan Modi.
"If it continues to struggle then we will have to review our rating on the fund, but we do tend to be patient," he said.
Duggal, who was born in Rugby, England, but grew up and was educated in India, is risk-averse in his personal life, having never bought even a single Indian stock. But when it comes to managing his fund, he is not afraid of putting hundreds of millions into high-conviction bets.
Stocks such as Cairn Energy and Jindal Steel and Power Ltd were once 10 per cent each of his portfolio. And the top-10 holdings accounted for half of the GIF fund's assets at the end of June, according to data from Lipper.
Duggal's biggest bet is HCL Technologies, India’s No. 4 software firm, accounting for 8.3 per cent of the fund's assets at end-June. HCL has lost about a fifth of its value in 2011.
Car maker Maruti Suzuki is the second-biggest holding and made up 8.2 per cent of the fund's portfolio. That stock has plunged about 24 per cent this year.
Duggal, 47, acknowledged in an interview with Reuters that the GIF fund's recent performance has been disappointing but said there would be no change to the investment process.
Investors have piled into stocks with expensive valuations such as HDFC Bank, HDFC and TCS that his fund is not in favour of, he said.
"In our process, we are valuation cautious. We can't own those stocks," said Duggal, who invests about a quarter of his personal savings in the funds he manages.
The GIF fund, however, is reshuffling its portfolio by selling down defensive sectors such as utilities and consumer staples and buying banks and autos.
The fund recently bought ICICI Bank and Infosys, catapulting them into its top-10 holdings. Real estate firm Unitech and state-run power gear maker BHEL have dropped out of the top 10, Duggal said.
Duggal, a chartered accountant who worked as an internal auditor for UK-based Hill Samuel before switching to a funds management career, is assisted by portfolio managers Viresh Mehta and Nilang Mehta in investment decisions. In early 2008, the team managed as much as $11 billion.
The GIF fund's recent pain has meant gain for its major rivals.
Over the past year-and-a-half, The Aberdeen Global-Indian Equity A2 fund's assets have risen by nearly half and Fidelity's India Focus A fund's size is up by about a quarter, according to Lipper data.
By comparison, assets of the GIF fund, HSBC's biggest, have shrunk by a fifth over the same period. And the $3.3 billion lead in size that it had over the next biggest India dedicated offshore equity fund has now narrowed to just about $550 million, Lipper data shows.
It has not always been like this for Singapore-based Duggal who has run the GIF fund since its launch in 1996 and is one of the biggest contributors to the revenues of HSBC Global Asset Management, which manages $88 billion in equity funds.
His long-term track record shows why many investors consider him one of the best managers for their India exposure. The GIF fund has returned 636 per cent in the 10-year period ending August 19 versus the 445 per cent average return of peers.
But his returns are volatile. When Indian shares plunged during the 2008 financial crisis, the GIF fund lost 70 per cent of its net asset value for the year versus the 52 per cent drop in the benchmark Mumbai index.
In 2009, the index rebounded by 81 per cent. The GIF fund, however, was up 132 per cent, according to data from Lipper.
The wild swings and recent downturn in Duggal's performance are proving too much for some investors such as Singapore resident Savithri Swaminathan to stomach.
"I thought the fund's lackluster performance was surprising because others were not going down," said Swaminathan, who sold out of the fund in June.