The Telegraph
Since 1st March, 1999
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Tough call for infotech-only mutual funds
Satish John
Mumbai, April 18: Investors and managers of mutual funds that invest almost exclusively in infotech have run into a cul-de-sac as one firm after another springs a number nightmare and makes uneasy confessions about a future clouded by falling growth.
After investing in technology stocks that till a few weeks ago were dubbed as “growth” stocks, mutuals find net asset values (NAV) of their schemes dwindling rapidly as slump-scarred companies outlive the label.
Profit warnings from leading technology companies like Infosys and Wipro suggest that bottomlines could grow by 10-14 per cent every year — a climb-down from the heady rates of 25 per cent or more.
“At best, these are value stocks at low levels,” say analysts grappling with change in perception after infotech stocks gave up 50 per cent of their value in the past two weeks.
“We have no choice, but to stay invested. At best we can keep a large part of the corpus in cash,” said Sachin Sawrikar, a fund manager at SBI Mutual Fund’s IT Fund.
While diversified funds spread money — and risks — across several industries, sectoral funds like those devoted to technology have to put all their eggs in one basket.
“We can use the present opportunity to reshuffle stocks from our portfolio by shedding some laggards,” Sawrikar says. His remarks underscore risks faced by investors investing in funds sinking money in IT and drug firms.
When the industry performs poorly, the sectoral investor has only two choices: cut losses and quit by pulling out of the fund or wait for the industry to turn around.
“Investors have a choice, we don’t. They can migrate from one sector to another,” says Sawrikar. All the leeway a fund manager like him has is to invest 10 per cent of his scheme’s corpus in sectors other than the one for which it has been set up. The other option is to hold a lot of cash. Some funds, like the SBI Mutual’s IT Fund, are already keeping 20 per cent of their corpus in cash. The fund has seen its corpus depreciate from Rs 43 crore last fortnight to Rs 34 crore.
“Such a strategy is also fraught with risk,” says a fund manager of a scheme promoted by a public sector insurance company. When the IT stocks bounce back, the fund manager would have missed the rally. Sawrikar accepts the logic, but says the opportunities of bargain hunting will be immense in the current turmoil.
Many infotech shares, he says, are already attractive buys. JP Morgan’s report reveals that Infosys guidance could be on the conservative side. If the company does better than its forecast, it would be back in the reckoning for mutuals.
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