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Equity funds pruning exposure to Infosys

Aabhas Pandya

Equity funds are pruning exposure to Infosys. Apart from the sharp erosion in price last month, 34 equity and sectoral funds, for which portfolios are available for December, dumped close to 100,000 shares of Infosys on the bourses. While the figure is minuscule with the company's equity capital at Rs 0.33 billion (66 million shares of Rs 5 each), equity funds are beginning to re-align portfolios and reduce dependence on the technology blue chip.

Fund managers say Infosys has had a significant weightage in the past but they are now bringing down the exposure. Also, the dip in price has pulled down the cumulative investment of 34 funds by 26 per cent from Rs 6.8 billion in November to around Rs 5.03 billion in December.

"Infosys is a high quality company and fundamentally, nothing has changed. In fact, the company lived up to expectations in the third quarter. However, the scrip today figures in every portfolio and unless you have new funds or institutions coming to the market and buying Infosys, it will continue to be range-bound," says the chief investment officer of a mutual fund.

For the third quarter, Infosys reported a net profit surge of 125 per cent, thus largely meeting analysts' expectations. "Investors are looking three-four quarters down the line and there is a fear that a slowdown in the US could impact top-rung IT companies. Till a clearer picture emerges, it is prudent to reduce exposure to the top company of the Indian IT sector," adds the head of a leading brokerage house. According to fund managers, the IT budget for US companies will be finalised in the next two months and a clearer picture of order flows to Indian IT companies will emerge then.

Among some of the heavy sellers, Birla Advantage's exposure to Infosys stands reduced from 24 per cent on November 30 to only 12 per cent towards the end of December. Apart from cutting exposure, the 20 per cent-plus drop in price in December has pulled down the value of investment from Rs 1.32 billion to less than Rs 0.6 billion. Besides Birla Advantage, Magnum IT, Zurich India Equity, Templeton India Growth Fund and Kothari Pioneer Prima Plus are some of the other prominent sellers.

"Infosys is a known story today and hence, you cannot expect supernormal returns from the holding. A strong and sustained performance is impacting Infosys where everyone knows that the company will deliver and hence, there is no element of surprise. Fund managers now need to scout for unknown stories with strong growth potential," says a fund manager.

Nonetheless, fund managers are eagerly waiting to find out if the slowdown in the US impacts the likes of Infosys. "Any evidence to the contrary and announcement of large orders by (IT) companies is likely to lead to strong appreciation, especially after the meltdown in valuations," says Aniket Inamdar at Cholamandalam Cazenove.

Source: Value Research

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