Goldman Sachs Asset Management (GSAM) India has deferred plans to launch two equity funds amid weak demand for local investment products. The portfolios, which were supposed to kickstart GSAM India's operations, were originally set to be launched within the first quarter of this year.

Stock market conditions in India will determine the timing of the launch of the two GSAM India equity funds. Realistically speaking, according to a source familiar with the situation, the launch of the funds won't happen until 2010 at the earliest.

GSAM India's decision to put its local mutual fund business on hold follows the disappointing launch of the JP Morgan India Tax Advantage Fund, which raised less than Rs10 million ($207,232) during its initial offer period that ended on January 16. JP Morgan Asset Management India, which was set up in 2007, manages around Rs20 billion ($414.5 million) in India.

The timing of a fund launch in India is considered more crucial than in most other markets in Asia. After all, it is during a fund's initial offer period in India that the bulk of the subscription is generated. Very little additional inflow can be expected after the offer period.

Once among the most promising stock markets in Asia, India has succumbed to heavy selling pressure due to the global financial crisis and concerns over the local economy. Accounting fraud at Satyam Computers has further weighed on an already bearish market. After scaling new highs in 2007 with a 47% gain to 20,287, the benchmark Bombay Stock Exchange's Sensitive Index (Sensex) fell 52% in 2008. So far this year, the index is down 0.8%.

Launching the equity funds as originally planned would have been damaging for GSAM India, which got its approval to operate its local mutual fund business only in September last year.

"Launching at a time when market conditions are weak would mean foregoing the opportunity to give the business a head start in India," says the source. "You can't just splurge on marketing six months down the line for an old fund in the hope that inflows will come later. It doesn't work like that in India."

Due to the delay in the launch of GSAM India's equity funds, it is no longer viable to keep the team the fund house put together to market and sell those funds. Less than a dozen people will be affected, but GSAM is looking to place these people either in its operations in India, Singapore, or Hong Kong in the hopes of limiting redundancies to six people.

Adam Broder, CEO of GSAM India, will be leaving Mumbai and is expected to resurface in Hong Kong, London, or New York. Broder was set to leave Mumbai anyway due to unrelated personal circumstances, but the latest developments on-the-ground have accelerated the process.

Broder won't see the fruits of his hard work over the past year, however. He has lived in Mumbai since February 2008, when he started working on getting GSAM India's license and laid the groundwork for the local operations. Broder has worked at Goldman Sachs since the late-1990s. He worked in New York for a while, in both Goldman Sachs Asset Management and Private Wealth Management. Right before moving to Mumbai, he was based in Hong Kong where he worked closely with GSAM Asia ex-Japan head Oliver Bolitho on building the fund house's broad Asian strategy. A large part of Bolitho's focus since moving to Hong Kong from London in March 2007 to head the GSAM in this region has been to build the business in India and Korea.

GSAM India CIO Prashant Khemka will remain in Mumbai to service offshore clients and institutional investors. Khemka was previously the head of the GSAM research team in Mumbai, which was set up in December 2006. Prior to moving to Mumbai in September 2006, he was a senior portfolio manager and co-chair of the investment committee for the growth equity team of GSAM in the US. He joined Goldman Sachs in 2000 as an investment research associate. Before GSAM, he worked as an assistant portfolio manager in the fundamental strategies group at State Street Global Advisors.

GSAM is among the latest in a string of new entrants to India's mutual fund industry over the past two years. Mirae Asset Financial Group, AIG, Axa Investment Managers and Pioneer Global Asset Management are among those that have already set up asset management operations in India.

The setting up of operations in India last year marked the continuation of GSAM's expansion in Asia. In 2007, the fund house acquired Macquarie-IMM Investment Management in Korea, giving it a foothold in that lucrative market.

The set-back in India doesn't mean GSAM won't be on the lookout for opportunities to expand in Asia. GSAM says other opportunities in the region, such as China, continue to be worth pursuing for the long-term.