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Sleepless nights for fund managers as Infosys falls

Aabhas Pandya

It is nothing short of snapping a lifeline! When the toast of the Indian tech sector, Infosys announced a growth warning on Wednesday, it was a bombshell for most fund managers. It not only dashed the hopes of a near-term revival for the beleaguered sector but also dragged the scrip down 16 per cent or Rs 617 from the stock and severely hit the NAVs of Infy-heavy funds. In fact, the company has lost an unbelievable 28 per cent or Rs 1,000 in two days last week. Infosys is the mainstay of as many as 130 funds, including monthly income plans and balanced funds, with a cumulative investment of Rs 29 billion on February 28, 2001. Little wonder then, the mayhem in the scrip is giving sleepless nights to fund managers.

As many as 28 funds have invested over 10 per cent of their assets in Infosys, with funds like Canequity Taxsaver holding over one-third of their corpus in the company. The concentrated investment from these funds alone is a whopping Rs 7 billion. Unfortunately for their investors, the "all-weather" stock has now fallen prey to the global slowdown and expects just a 30 per cent growth this year against a 112 per cent jump in turnover for the last fiscal.

Among the worst hit by Infosys' fall are funds from Canbank Mutual Fund. However, the quantum of loss cannot be ascertained since the AMC is not disclosing NAVs due to book-closure. Another top loser was ING Growth Portfolio that shed a whopping 14.2 per cent with Infosys accounting for over a fifth of the corpus.

However, some fund managers are still upbeat about the company and believe even a 30 per cent growth rate is impressive in such trying circumstances. "You cannot expect a 100 per cent-plus growth rate every year. That velocity of growth is clearly not sustainable. In fact, once the slowdown is over, the company has the potential to grow at 45-50 per cent a year," says a fund manager. "Infosys has always been conservative with its estimate since it wants to outperforming its own numbers. Further, the company has a strong offshore development capability and is expected to bag contracts even in the current downturn. Thus, the company could actually grow by 35-40 per cent this year, which will be a big boost," adds the CIO of a mutual fund.

Nonetheless, while fund managers are surely not abandoning Infosys and definitely not at these levels, the halo around the scrip has definitely disappeared. With Infy no longer invincible, fund managers are unlikely to recklessly buy the stock going forward. While this is expected to bring down the dependence on the stock for generating returns, yet, it has been a hard lesson for most fund houses.

The Infosys Syndrome

Fund	% of Net Assets *	Fall on April 11
ING Growth Portfolio	22.31	-14.2
KP Infotech-G	20.6	-11.0
UTI Software	18.8	-10.2
KP Internet Opportunities Fund	18.71	-6.8
Magnum IT	18.6	-9.8
Birla Equity Plan	13.44	-6.5
Birla IT	13.43	-4.1
Master Index	13.03	-3.9
Birla Advantage	12.83	-3.9
JM Equity-D	12.24	-4.8

* As On February 28, 2001

Source: Value Research

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