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Tech funds: Donít make the same mistakes - Views on News from Equitymaster
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  • Dec 11, 2001

    Tech funds: Donít make the same mistakes

    The recent runup in equity markets, fuelled largely by software stocks, reminds one of the surge in software stocks at the end of 1999 and early 2000. Of course the growth this time around is from a lower level and even the quantum of growth is lower than the 1999-2000 boom. As far as the investors are concerned, they need to remind themselves of the lessons learnt in 1999-2000.

    A lot of mutual fund investors are excited about the improvement in tech fund net asset values (NAVs). Some of these investors own tech funds already, which they had bought in 1999-2000 at par value (Rs 10) and have been looking for an exit point ever since. Some investors have been buying tech funds at every fall (in software stocks) and have averaged regularly. They have succeeded in cutting losses and the smart ones have even made moderate gains. Another category of investors donít own tech funds, but are keenly observing the developments and may even be contemplating entering tech funds right now. It is this group of investors that we wish to address.

    Quite frankly, investors who are looking to enter into tech funds right now have missed the bus. They missed it about a couple of months ago, after the market crash in the aftermath of the terrorist attacks in the US. That was the time, when investors should have bought equity funds, particularly tech funds that were incredibly and unreasonably low.

    However, investors who are looking at remaining invested in tech funds for a fairly long period of time (at least 2 years) can consider investments at this level. At least two fund managers we met in the recent past, seemed confident about the growth potential of the tech sector. Mr Vibhav Kapoor (MD - IL&FS Mutual Fund) commented on the fortunes of the tech sector: ĎI think there is still a lot of uncertainty with the sector. Not with the growth potential of the sector, rather with the growth figures to expect in 2002-03. This will probably get clearer by December-January, when US companies outline their tech investments. I just read about a study undertaken by the Gartner Group for year 2002 that says that tech segment could increase by 1.5%. If all this is true, then the picture could get clearer.í

    Even Mr Nitin Raheja, (equity fund manager Ė SUN F&C Mutual Fund) was likewise optimistic, ĎWhile it is true that demand in the US has slowed down, there are still opportunities for Indian companies. A fall in demand does not mean that the tech story is over and that this demand will not rise again in the future. What we are seeing currently is that unlike the secular growth story of the past this industry like others is now seeing similar rises and falls in demand. This time we will see some restructuring taking place in the industry. The bottomline however is that the sector is still posting 30%+ growth rates. The opportunities globally in the tech sector are yet immense the question in fact should be what are Indian software companies doing to tap those opportunities.í

    All this is good news for investors looking to enter tech funds now. But the investment horizon needs to be much longer than a couple of months, something like a couple of years or even more. Equity investments build wealth over the long term, but can be volatile in the short term and can even erode wealth. If investors can take that kind of a view on their tech fund investments then this is a good level to buy a good tech fund, else investors must keep away and remind themselves of the lessons learnt in 1999-2000.

    If you are in Mumbai and are interested in investing in mutual funds or other investment products, please register here.



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