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Ring out the old, ring in the new - Views on News from Equitymaster
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  • Jun 23, 2000

    Ring out the old, ring in the new

    No this isnít someoneís New Year resolution. Itís a verdict passed by most fund managers going by their the stock pickings over the past few months.

    Old Economy Vs New Economy. But first - what is old economy? The Old economy consists of companies that conduct their businesses conventionally, with heavy fixed assets (factories, land), inventories and a moderate use of technology. As opposed to this, we have the New economy with companies conducting their businesses with a much lower fixed asset base and inventories and a heavy dependence on technology for the success of their venture.

    This particular debate between the old and the new economies has assumed some significance after the dramatic correction in technology, media, telecom (TMT) stocks since March 2000 both in the domestic and international markets like the NASDAQ. So is there a shift back to the old economy stocks? Not if one goes by some facts outlined below.

    We at personalfn.com decided to conduct a study to get some facts straight. For this we took one representative company in both the old and new economies. For the new economy we chose every fund managerís holy grail Ė Infosys Technologies, Indiaís torchbearer of software and technology. And for the old economy we chose Reliance Industries, which was every fund managerís holy grail in the times of the old economy. We have outlined below a list of mutual funds that have exposures to both these stocks. (We have not included Index funds in our study as these funds hold Reliance and Infosys by default and not be design. We have also omitted all sectoral funds)

    List of open-ended funds holding Infosys
    Scheme Date of holding % Holding NAV†(Rs)
    Canpep 1993 31 Mar,2000 53.7 24.05
    Canexpo 31 Mar,2000 36.8 21.50
    Morgan Stanley Growth 31 Mar,2000 27.1 16.74
    Cantriple 31 Mar,2000 23.3 21.91
    Birla Advantage Fund 31 Mar,2000 21.3 46.07
    Canganga 31 Mar,2000 19.0 12.30
    Birla Equity Plan 31 Mar,2000 17.8 33.16
    Birla Balance (Gr) 31 Mar,2000 17.1 12.46
    Unit Scheme-1995 (Gr) 3 Jan,2000 13.8 196.32
    K 30 16 Jun,2000 12.9 20.69
    Alliance Equity Fund (Gr) 31 May,2000 12.8 41.37
    JM Equity Fund (Gr) 31 May,2000 12.1 12.50
    Tata Tax Savings 30 Apr,2000 11.8 16.25
    Alliance Monthly Inc.(Gr) 31 Jan,2000 10.5 12.75
    K Balance 16 Jun,2000 10.4 10.94
    Zurich(I) Equity (Gr) 30 Apr,2000 10.2 22.02

    (The above list is not comprehensive and only has funds with over 10% exposure to Infosys)

    The table above speaks for itself. Mutual fund obsession with Infosys rides pretty high and even thatís an understatement. Compare to this old economy veteran and the stock market darling of yesteryear - Reliance Industries.

    List of open-ended funds holding Reliance
    Scheme Date of holding % Holding NAV†(Rs)
    Unit Scheme 1964 31 Mar,2000 14.3 NA
    Mastershare Plus 1991 31 Mar,2000 12.9 23.45
    Templeton Growth Fund 31 May,2000 9.6 13.63
    Mastergain 1992 23 Feb,2000 8.7 12.25
    DSP ML Opportunities (Gr) 31 May,2000 8.3 10.41
    Mastergrowth 1993 31 Mar,2000 8.2 20.73
    Unit Scheme-1995 (Gr) 3 Jan,2000 6.6 196.32
    Grandmaster 1993 31 Mar,2000 6.6 10.57
    Primary Equity Fund 31 Mar,2000 4.5 17.38
    Sundaram Growth 31 Jan,2000 3.5 15.18

    (The above list is not comprehensive and only has funds with over 3% exposure to Relaince Ind.)

    Out of the 10 funds listed above no fund had over 15% exposure in Reliance. Compare this to the Infosys table where we see 8 funds with more than 15% holding in the company. Another interesting fact highlighted by the Reliance table is UTIís exposure to the company. Out of 10 funds in the Reliance table, 7 funds are from UTI.

    While we agree that the above study involving just two representative companies may not be conclusive, it is nevertheless indicative. There can be no two opinions on the mood prevalent in the markets. It is very much Ė ring out the old, ring in the new.



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