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Technology funds take a beating

Aabhas Pandya

Technology funds have hurtled down to fresh lows as Indian technology stocks continue to swoon on the slide at NASDAQ. The seven technology funds, launched earlier this year, are now down an average 42.4 per cent, with a couple of funds shedding more than 50 per cent in a matter of 7-8 months! For instance, the technology fund from Prudential-ICICI has seen its NAV erode by 51.2% to Rs 4.88 while IL&FS e-COM is a notch lower at 51.3% or Rs 4.87.

Thus, had you invested in the IPOs of one of these funds, you would have lost more than half of your investment. The combined corpus of these funds (as on September 29) is now a little over Rs 1600 crore, down a whopping 30.24 per cent from the initial collection of Rs 2300 crore. However, the silver lining is that some of these funds have continued to attract fresh investments, despite their jarring performance.

So, where are your investments headed in technology funds? A tough nut to crack but it's a pertinent question at the same time. It is indeed baffling that Indian IT stocks continue to draw inspiration from NASDAQ, even as Indian IT companies continue to forge ahead with a spurt in revenue and net profits. Hence, unlike the NASDAQ, where profit warnings by leading technology companies is feeding the bears, most Indian IT companies are beating analysts' estimates.

For instance, in the second quarter of the current financial, the sales of 23 ICE companies has vaulted by an average 67 per cent with net profit soaring by a startling 86 per cent. The companies include Infosys, Satyam, Global Tele, Moser Baer, Polaris, HCL Infosystems, Mastek and Sierra Optima. Add to it, there are no listed dot-coms here, whose bankruptcy is spoiling the growth charts of the technology sector. In fact, the only Indian portal, Rediff, which is listed on the NASDAQ, has also seen its second quarter turnover gallop by 306 per cent to $1.34 million.

Thus, it's a clear case where sentiment, rather than fundamentals, are dictating the market movement. "The concept of offshoring work to India has just begun. From $4billion in 1999, the software exports are expected to grow to $50 billion by 2008. Due to India's strong competitive advantage in IT services, we see growth being sustained into the long term. Hence, we expect technology to be the fastest growing sector in the country in the medium term," says Aniket Inamdar, fund manager, Chola Freedom Technology. Adds R Sukumar, fund manager, KP Infotech and KP Internet Opportunities, "Our recent visits to IT companies confirm that most of them are witnessing an increase in demand for their services. We feel that the Fortune 500 companies will now increasingly look to cut costs and the competitive nature of the Indian IT services should result in further growth." KP Internet Opportunities is currently down by 39.3 per cent, with the NAV at Rs 6.07 on October 18.

It is beyond doubt that the market has to eventually take notice of the fundamentals and strong growth in technology companies, especially when concerns of a slower growth in the economy is impacting the cyclical sectors. However, unlike early this year, one may not see a wild rally in technology companies and given that tech funds have lost more than 40 per cent of their NAV, recovery will surely test the patience of investors. So, for the time being, just pray for the bulls to take charge on the bourses!

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