Jupiter India manager Avinash Vazirani has been left reeling as his heavy holdings in state-run oil refiners plunged following the Indian government's intervention in the domestic fuel market.

Vazirani's top holding Hindustan Petroleum (HPCL.NS) has lost a third of its value since the Indian government yesterday asked oil marketers to subsidise retail fuel prices. The stock accounted for 5.5% of the £950 million Jupiter India fund at the end of August.

Bharat Petroleum (BPCL.NS), a 2.7% holding, was down 27.7% while Indian Oil (IOC.NS), a 2.1% position at the end of July, lost a quarter of its value.

The news represents the latest setback for Vazirani in a torrid 2018 for the once top-performing manager. Jupiter India has dropped 8.2% over the last two days, and has now lost a third of its value since the turn of the year, the worst performance of any fund in the UK market.

Vazirani said he was 'disappointed' by the Indian government's decision. 

'We had good reasons to believe that the government would not interfere with fuel prices,' he said.

'For one, the margins of the oil marketing companies are very small relative both to retail fuel prices and to the government’s tax take, so cutting the marketing margin would deliver only a tiny benefit to consumers, while doing a lot of damage to the government’s credibility before investors.'

He said the plunge in Hindustan Petroleum's share price was an 'overreaction' pointing to the fact only 20% of its revenues came from the fuel retailing business that had been hit by the government's move.

'Even in a worst-case scenario where fuel retail profits were eliminated altogether, the earnings impact would be a maximum of -20%,' he said.

'Based on what we know so far, we believe that the share price move is an overreaction even if one were to assume a return to full price controls, which this does not appear to be,' he added.

Vazirani said he had been reassured by both India's finance minister and the state-run oil refiners that 'this is not a structural policy shift from the government on control of pricing, but rather a short-term measure due to the dual impacts of dollar appreciation and higher oil prices'.

Shares in Hindustan, Bharat and Indian Oil had been hit by fears over fuel subsidies in the run-up to yesterday's announcement, with the stocks down 60%, 49% and 39% respectively over the year to date.

Vazirani acknowledged those jitters in his quarterly update to investors issued in July.

'The fund’s overweight exposure to oil marketing companies detracted from relative performance on concerns the Indian government may reinstate fuel price subsidies to mitigate the rising oil price,' he said.

'We believe it is very unlikely that fuel price subsidies will be re-instated.'

The Indian government has cut the excise tax on gasoline and diesel by 1.5 rupees and asked state-run oil marketing companies to absorb one rupee on the sale of the fuels, as it struggles with higher oil prices.

Oil's strong rally, up 57% in pound terms over the last 12 months, has weighed heavily on India, the world's third largest oil importer.

Its stock market has been among the worst performing global markets this year, down 8.4% in pound terms.

Vazirani's torrid 2018 represents a swift turnaround in fortunes for the manager, whose fund was high up the bestsellers list as recently as last year, thanks to his strong track record.

That helped the manager to a place on Hargreaves Lansdown's Wealth 150 list of recommended funds, while his fund amassed more than £1 billion in assets.

The fund has fallen below the £1 billion mark this year, with assets standing at £950 million at the end of August.

Despite this year's heavy losses, the fund has delivered 110% to investors since its launch in February 2008.