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Tech funds collapse as tech stocks seek new bottoms

Value Research

It is getting scary out there as technology funds plummet to fresh lows. With the Sensex losing another 97 points on Monday, the funds are bound to sink further. A falling Nasdaq has triggered a melee in domestic technology counters and routed the net asset values of technology funds. As fresh profit warnings emanate from US technology majors, the fears of a sharp cut in IT spending is beginning to look more real than ever. Unlike cheaper outsourcing by US companies, which would have been positive for domestic tech companies, an outright cut is bound to impact the Indian tech sector. Further, the Federal Reserve is yet to oblige the markets with another rate cut, which is widely seen as the only potion to recharge the US economy.

"As far as we know, things are not going to be as good as expected initially but not as bad as is being made out to be. Yet, the sentiment is poor and it is difficult to say when the market is going to be normal. The long-term trend is still bullish on the technology sector though there may be problems for a couple of quarters as some companies are in a restructuring mode," says R Sukumar at Kothari Pioneer.

The fury of a Nasdaq induced drop has been dramatic with assets under management simply washed away. The seven new generation ICE funds were launched around this time last year. A mega-success with thousands of investors, these funds had mobilised over Rs 23.30 billion in 2000. Currently, their NAVs lie badly bruised, losing an average 51 per cent from the initial offer price of Rs 10. In fact, funds like IL&FS eCOM and Prudential ICICI Technology have lost nearly 60 per cent of assets. The combined size of the seven funds now stands eroded by 53 per cent or Rs 12.39 billion at Rs 10.95 billion. Most funds have also been hit because they are almost fully invested. For instance, Sun F&C Emerging Tech had less than 3 per cent of its corpus in cash while Prudential-ICICI Technology was holding 6 per cent of its assets in money market instruments on January 31, 2001.

Yet, every cloud has a silver lining. Even as NAVs have dropped like ninepins, funds have seen little redemption pressure. At the same time, the thought of burning their fingers in the ICE fury is keeping fresh investors at bay. "It is a good time to invest, especially for those who want to average out their cost of investment in 2000. On the other hand, investors do not want to redeem at such low levels," says a fund house official.

While the assets under management have suffered sharp erosion, the unit capital (number of units with the fund) has fallen by only 7 per cent or Rs 1.63 billion. While Alliance New Millennium has bucked the trend with the fund receiving fresh inflows, Sun F&C Emerging Technology has been the worst hit and has seen its unit capital fall from Rs 2.57 billion to an estimated Rs 1.87 billion in February end.

TECH BLUES

(Rs crore)

Fund	IPO Mop-up	Corpus *	Net asset value (Rs) **
Alliance New Millenium	540	396.83	5.89
DSPML Technology.com	47	29.01	5.30
IL&FS eCOM Fund	197	87.61	3.95
K Tech	230	110.97	4.52
KP Internet Opportunities Fund	555	329.86	5.72
Pru ICICI Technology	509	296.77	4.02
Sun F&C Emerging Tech	257	102.51	4.81

* On February 28 except Pru ICICI Tech
** On March 2, 2001

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