On April 10, that year, Infosys lowered its revenue guidance for fiscal 2004. The share price crashed 27 per cent that day and 14 per cent, the next. Of course, the repercussions spread through out the sector and the category lost 12 per cent in a single day while the BSE IT index lost 20 per cent.
Despite this, it recovered quickly. By May 2003, more money coming in by the foreign institutional investors (FIIs) and recovery on the NASDAQ brought back buying interest. And when Infosys later revised its earnings guidance, the index moved up by 10.34 per cent in a day. But the damage was done.
Fund managers were nervous. And in 2003-04, a few technology funds were converted into or merged with their diversified siblings. And over the years, one would also observe that fund managers became much more broad based and flexible when determining the technology mandate.
But it was not too long when technology once again hogged the limelight. Good corporate results in the first quarter of 2004, higher revenue guidance for FY 2004-05, revival in the U.S. economy, higher technology spending and increased recognition of Indian ITeS providers by global customers helped.
So when the market rallied from May 27, 2003 to January 5, 2004, technology funds gained an impressive 114 per cent, which paled in comparison to the BSE IT gain of 125 per cent.
Prudential ICICI Technology stood out with a 130 per cent gain, thanks to its mid-cap heavy portfolio. And from January 5 to May 17, 2004, technology funds lost 24 per cent.
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Come January 2005 and technology was a favourite with fund managers. Out of the 115 diversified equity funds, 35 had technology as their top sector.
By the end of the year, 117 of the 124 diversified equity funds had an average 14.05 per cent of their portfolios parked in technology. Of these, 40 had technology as the top sector and 19 put it in second place. Not so any longer.
Technology no longer corners a substantial part of portfolios. A historical perspective tells us that technology may get hit but has tremendous resilience too. It did recover from the 2000 tech debacle to become the sector most heavily courted by fund managers once again.
Though one cannot help but wonder if the best is behind. The headwinds, in the form of the U.S. credit crisis and the appreciating rupee, are strong.
But that is certainly no indication to ignore this sector. The valuations of technology companies have come down to levels never witnessed since 2000. They have evolved in terms of their business models and are still upbeat of future prospects.
The offshoring trend remains intact and companies are still bagging large deals from overseas clients. There will be some pain in this sector for some time, but surely there is a great scope of making money.
Birla Sun Life New Millennium
This fund is a survivor. After a disastrous start in January 2000, it continued to languish at the bottom of the category. In 2003, it staged a comeback with a return of 67.29 per cent (category average: 53.52 per cent). This was the outcome of a concentrated portfolio with a focus on mid caps and smart stock picking
In September 2005, the fund (erstwhile Alliance New Millennium) was rechristened as Birla Sun Life New Millennium with a focus on technology, media, telecom, internet and ecommerce businesses.
But it was not just a change in name once acquired by the new fund house. The new team immediately began working on diversification and from an average of 12 stocks, the portfolio began to hold around 20 stocks. Additionally, allocation to individual stocks too was cut.
For instance, in July 2005, the top three stocks accounted for almost 39 per cent of the portfolio. All that has changed. The top five holdings are currently at almost 35 per cent and the portfolio has 26 stocks.
Unfortunately, the revamp did not do it much good and the fund stayed an average performer. Last year though, it once again impressed going ahead of the category average. It is difficult to nail down the fund manager's style. The fund has never adhered to any single market cap. In its earlier days, it shuffled between a large and mid cap orientation but now does not tilt towards any market cap, unlike its peers.
This fund will not disappoint but the flashes of brilliance are not too common either.
TROUBLESHOOTER
ICICI Prudential Technology
We have been looking at this fund for years. And have consistently emphasised the fact that it can go ahead of its peers only to fall way back when the going gets tough.
While historically that has always proved to be the case, recent evidence too points in that direction. Naturally, one is not surprised to see that in 2006 it was the best performing fund. But in 2007, it underperformed the category average.
After getting nailed during the tech debacle, ICICI Prudential Technology realized (like some of its peers) that it could perform better than the norm if it also invested outside the tech sector. So one cannot really fault it for a broad mandate that includes media and entertainment, telecom and the internet business.
Though what's baffling is the exposure to the healthcare sector. Over the years, it had held stocks like Ranbaxy, Plethico Pharmaceuticals, Vivimed Laboratories, Wockhard, Divi's Laboratories, Elder Pharmaceuticals etc. Like all tech funds, it started off as a large-cap offering.
From 2002 onwards, it shifted towards a mid-cap stance and from July last year, it has boldly been picking up small cap stocks. So Wipro, HCL and Infosys are conspicuous in their absence while Satyam Computer and TCS jostle for space with Tanla Solutions, Deccan Chronicle, Vakrangee Software, eClerx Services, 3i Infotech, Global Broadcast News and Patni Computers. Though the portfolio is well diversified with around 26 stocks, when the fund manager is convinced about a stock, he rides his bet.
With the highest standard deviation amongst its peers, it has the potential to boldly surprise. But do ensure that you stick on for long and don't fret at market downturns.
DOWNLOADING PROFITS
DSPML Technology.com
This consistent category outperformer, thrashed the competition in 2007 to deliver 58 per cent (category average: 11.19 per cent). All a result of fund manager Apoorva Shah's radical moves. Faced with an appreciating rupee and fears of a U.S. downturn, he reduced the allocation to software service export companies and began to increase it to service and media stocks like Educomp Solution, Tata Teleservices and NDTV.
The fund's 82 per cent exposure to technology (January 2007) fell to 57 per cent (January 2008) while services (including media) were up at 32 per cent. Last year, it also steadily reduced its position in large caps and in March 2008, the mid- and small-cap exposure was at 72 per cent.
The moves paid off well and the corpus of the fund swelled by 437 per cent last year. Extremely commendable at a time when the technology sector was going through a bad phase. These inflows were probably the reason for this fund's high cash allocation.
The fund manager does not follow the herd. When other funds in the category filled their portfolios with mid- and small-caps in 2004 and 2005, he refrained from doing so. Neither does he have a problem entering and exiting stocks. Infosys had a 16.48 per cent exposure in February 2007.
He kept lowering it then exited the stock altogether but re-entered again. Now it is the topmost holding at 9.39 per cent. The portfolio is not too concentrated with around 26 stocks on an average and it is rare that any stock will have a double digit exposure.
Those interested in the telecom, media, technology and technology enabled sectors must give this fund serious consideration.
Source: Value Research