MUMBAI (Reuters) - U.S. investor Carson Block is weighing plans for an India fund which could be based on a 'long-only' or 'long-short' strategy but would not look at activist short-selling in the country, he told Reuters.

"The question we are asking is whether we would want to do long-short or long-only (in India)," Block said in an interview in Mumbai.

"But we wouldn't be doing activist short selling...I don't think that would enable us to have a successful fund management business here," he said.

Block, whose Muddy Waters Research came into the spotlight for uncovering fraud at Chinese companies, is yet to finalise plans for India.

Block has recently launched an investment vehicle in Vietnam after having run a long-only position in the country for a few years. Potential investors have suggested the fund look to do "something similar" in India, he said.

"I could see possibly a portfolio where maybe there are 20 names on the short side, each 1 to 2 percent positions. But again, maybe the thing to do now would be long-only instead."

The Indian markets have corrected sharply since October, with the benchmark BSE Sensex and NSE Nifty 50 down more than 14% from an all-time high hit in September. Fear of weaker growth, seen at a four-year low in 2024-25, has prompted foreign investors to sell $24 billion in Indian stocks between October and February so far.

The short-term volatility will not sway Block's plans for India but the country's complex taxation policies could.

Using India's tax-neutral zone, popularly known as GIFT City, as a route to invest is one of the options Block is considering.

"But there are practical considerations there in terms of talent and basing talent in GIFT City," Block said.

The Indian government is promoting the Gujarat International Finance Tec-City, or GIFT City, as a hub for global capital by offering simpler regulations and fewer taxes.

CHINA VS INDIA

Block, a well-known China sceptic, believes Western investors continue to underprice risk in that country's markets.

Chinese equity indices have rallied in 2025, led by technology stocks.

"When I look at the risks of owning shares in China, it would make me say, at best, it should be a short-term strategy to be long China," he said.

Western investors are looking for a "growth narrative" and India will have its turn at being that narrative in the next few years, Block said.

He sees geo-political risks in India as being lower than in China.

India's Adani Group, a large infrastructure conglomerate, recently came under attack from Hindenburg Research which questioned its governance practices and disclosures.

Hindenburg's allegations, denied by the group, led to a sharp fall in stock prices of listed entities within the group and prompted global investors to question governance practices across Indian companies.

"Different people have expressed a range of opinions on the integrity of accounts (in India). But I'd say, like any developing market, it can be challenging compared to developed markets," said Block.

"I see that the greater the challenges in transparency and the more that one would question the integrity of accounts, that presents an opportunity for us. And that's the type of place we like to be."