The Sensex has vaulted by over 63% to cross the 5,000 mark from 3,060 points as on January 1, 1999. So has been the case with NSE’s Nifty which touched 1,595.80 points on January 1, 2000 from 890.80 on January 1, 1999, a rise of 79%. Every analyst and investor would agree that the prime driving force this time around has been the IT stock. Even the Data Sock Index (DSI) has outperformed the BSE Sensex by a wide margin. The DSI-10, accounting for about 85% of the total market cap of listed IT stocks, jumped about 20 times from 92.17 as on January 1, 1999 to 1804.64 points by the end of the year. In contrast, the BSE Sensex jumped by only two times. Major beneficiaries of the upward trend have been companies wanting to tap the market with initial public offerings at a high premium. Such beneficiaries include mutual funds and IT companies like Hughes, Polaris, Sonata software, Zenith and HCL Technologies.
Private mutual funds have been growing at a scorching pace. The mutual fund industry was managing about
Rs 67,862 crore by end September 1998 and has moved up to Rs92,305 crore by September 1999. At current stock prices, the total funds managed by the industry could have well crossed the Rs100,000 crore mark. The new found love for mutual funds, which have not quite picked up in the recent past, has been driven by the block buster results of most of the funds. Again a closer analysis of the top performing funds would reveal one common factor–IT stocks. The best scrip–Infosys–is one of the top choices for IT scrips followed by Satyam Computers. In a random sample of about 48 equity and balanced funds, Infosys found a place in about 20 funds. Amongst the biggest holders of Infosys was the Birla Advantage Fund holding about 17% of its total asset of Rs641 crore as on November 30, 1999. However, Fund’s biggest investment in an IT stock is not in Infosys but Visual Software with a current holding of about Rs116.64 crore. When one takes into account UTI 64, with an enormous corpus of above Rs20,000 crore, even a small percentage in the fund is tantamount to big investments. Pentafour Software and Exports is a point. As on June 30 1999, the Fund held about Rs254 crore of the company’s stock, making it the largest IT scrip being held by any fund. Whether Infosys can beat this, will depend on the holding by Morgan Stanley Fund which has a corpus of about Rs13.35 crore and has Infosys as its top investment.
Wipro, the company with the largest market cap in India, does not find much investment with a majority of the mutual funds. The reason is the low-floating Wipro stock. With promoters and associates holding about 70-75% of the total equity, it is extremely hard to find the stock in the market. No wonder then that Wipro does not find favor with investors and has not made it to the top 10 holdings among a majority of the funds.
The upward movement of a majority of IT stocks has also given rise to IT sector-specific funds. The Kothari Pioneer Infotech Fund, with net assets of about Rs434 crore, is the biggest draw in the market today. Also, in terms of holdings in the IT sector, the winners would be purely IT sector funds like Kothari Pioneer Infotech Fund which held about 89% of its Rs434.85 crore corpus in IT stocks. No wonder then that it has been one of the fastest growing funds
in the country with returns of over 475% in the past one year.
However, other funds, realizing the importance of IT as an important net asset value (NAV) booster have sizable IT sector investments. Other funds with good IT stock holdings are Birla Advantage fund, Magnum Multiplier and Kothari Pioneer Prima (see table). These are funds which have shown good performance compared to funds which are less focused on the IT segment. A good example would be the Master Gain 91 fund. Though it has a corpus of about Rs1,824 crore, only NIIT figures in the top 18 holdings that account for nearly 75% of the total. NIIT’s share is about 5.89%.
In all these upsides, the only downside could be that if the market plummets, the IT stock with very high price to earning multiple will be the first one to go down. If something like this happens, today’s leaders could well land up as laggards.
in New Delhi