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Reality check

Niraj Bhatt

Tech stock investing has provided excellent returns in the past, but it doesn't come without its associated risks. As a group, these shares are susceptible to extreme volatility even in the US.

The last two weeks have made investors aware of this danger of tech stock investing and many are losing sleep. The average portfolio had become heavily loaded in favour of tech stocks which have faced a drubbing. Digital fell from a high of Rs 1,542 on February 22 to Rs 909 yesterday. Himachal Futuristic has seen an intra-day move of 16 per cent on March 6, 2000. TV 18 swings about Rs 200 on many days.

On the other hand, the rest of the market too continues to be smashed. So there is erosion from all sides. Retail investors had entered pharmaceutical and fast moving consumer goods also at much higher levels last year and this investment has come down from their purchase levels.

But the market is throwing up a lot of opportunities now. A lot of good companies in the pharmaceutical, fast moving consumer goods and manufacturing sectors have been beaten down to rock-bottom levels. The time does seem ripe to do some value investing and buy stocks that are available cheap.

German Remedies has dropped from Rs 1,390 in October 1999 to Rs 594 yesterday. Hero Honda is down from Rs 1,549 in July 1999 to Rs 932 after touching a bottom of Rs 750 in early March.

The tide is turning to some extent. Pharma stocks are back in flavour since Monday. Pfizer has posted impressive results and a 1:1 bonus (see: RISC corporate Announcements).

The broad market seems to be bottoming out. Retail broker K R Choksey says, "There are two good things. SEBI has relaxed the margin norms and a lot of overbought positions have been liquidated. The market seems to have bottomed out."

Marketmen are also bringing investors back to reality. Vasudeo Joshi, director & head of research, HSBC Securities, says investors should have half of their portfolio in tech stocks. He adds, "If the portfolio is higher, it should be rectified."

Ramdeo Agrawal, director, Motilal Oswal Securities, says portfolio reallocation will take place now and expects the incremental investments to move into non-tech sectors. His current recommendations are Hero Honda, MICO, Pfizer, and one tech stock that has not spurted in the rally -- NIIT.

In the beaten down stocks Joshi's favourites are Larsen & Toubro, ACC, Indo Gulf Corporation, Nalco, Pfizer, SmithKline Beecham Consumer, Telco and Hero Honda at current prices.

Choksey likes VSNL, MTNL, Hoechst Marion Roussel, Pfizer, Novartis, Hindustan Lever, Nestle and his picks in tech stocks are NIIT and Digital.

Is the tech boom over? Agrawal says no. He says tech stocks have seen roaring valuations in the recent past and a correction was imminent. He expects another tech boom in six months. Joshi says if investors do not have 50 per cent of their portfolio in tech stocks, it has to be scaled up. Choksey also says that money will go in sectors that show growth and technology cannot lose flavour.

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