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Tech funds' NAVs decline as stocks plummet

Aabhas Pandya

The tech rout is complete as the strongest bastion of the Indian IT sector Infosys succumbed to a slowing global economy and marauding bears on Wednesday and Thursday. It was also the worst day for the once-famous technology mutual funds, which lost an average 7.6 per cent with some funds losing in excess of 10 per cent. While most funds remain bullish on Infosys, the 16 drop on Wednesday in most frontline technology counters further compounded their woes. With investors in despair, asset management companies now fear a backlash and redemption now would further compound problems.

"Liquidity has simply dried up and a mere sale of few 100 shares triggers a slide. It is extremely difficult to sell in this market. Funds with marginal cash holding could face trouble in the event of a large redemption," says a fund manager, who spoke on condition of anonymity. Technology funds had seen some outflows last month, even though net asset values were down 60-70 per cent from their offer price of Rs 10 last year. "To put it mildly, investors are disgusted. They may just want to redeem now and save whatever little they can since there seems to be little hope of a revival in the near future," adds another fund manager.

With rampaging bears shearing off share prices, Kothari Pioneer's Infotech Fund was the worst hit with a whopping drop of 11 per cent to Rs 11.86. The fall is not surprising since Infosys is the fund's top stock with a weight of 21 per cent on March 31, 2001! The fund's other top holdings of Hughes Software, Satyam and HCL Tech also lost in excess of 15 per cent. Interestingly, KP Infotech is the only fund in the tech family now with an above par NAV. However, with its concentrated investments and absence of substantial cash component, the fund could soon join its peers if the selling continues.

It was no different for Alliance New Millennium, which plunged over 10 per cent to a new low of Rs 3.87. The fund's top three holdings of Digital Equipment, HCL Tech and Infosys were on lower circuit on Wednesday, losing 16 per cent each in the process.

While fund managers reiterate that the worst is over after Infosys' announcement on lower profits for the current fiscal, it is impracticable to state that the markets will rebound from these levels. Equities remain unpredictable at best and hence, it is not prudent to hazard a guess. Yet, if you are bullish on technology, believe it will continue to be the pivot in our daily lives and plan to invest for the long haul, the mayhem on technology counters could in fact be a rare opportunity.

Biting the Dust!

Fund	10-Apr-01	11-Apr-01	% Fall
KP Infotech	13.33	11.86	-11.03
Alliance New Millenium	4.32	3.87	-10.42
K Tech	3.19	2.87	-10.03
DSPML Technology.com	3.54	3.19	-9.89
Magnum IT	6.55	5.91	-9.77

Source: Value Research

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