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India's Kotak Mahindra Bank Ltd has launched a long/short hedge fund, a source with direct knowledge of the matter said on Friday, aiming to capture the upside in Indian shares and cut the downside by moving between sectors, and use of derivatives and cash calls.

The India Absolute Opportunities Fund had started with about $15 million, including $5 million in seed capital from Kotak Mahindra, said the source, who declined to be identified.

The fund would be managed by Singapore-based R. Rajagopal, who has spent nearly two decades tracking Indian financial markets and moved to Kotak Mahindra in 2008 from the Indian fund arm of DBS Group Holdings Ltd where he was chief investment officer, according to fund marketing material seen by Reuters.

Rajagopal could not be reached for comment.

Long/short equity is the most popular strategy in Asia's $125 billion hedge fund industry, which is seeing a revival of flows given the region's stronger growth prospects.

Nearly 35 long/short equity hedge funds focused on India manage about $2 billion in assets, according to data from hedge fund tracker Eurekahedge, and gave just over 10 percent return in 2010. Some of the bigger ones include funds from Helios, headed by high-profile Indian fund manager Samir Arora, and HSBC Holdings Plc.

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