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Monday, Dec 23, 2002

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Big tech cos are safe bets

Nilanjan Dey

TECHNOLOGY stocks are witnessing a lot of action these days, thanks largely to the market's rising interest in a number of them. Mutual funds, for their part, have been handling a lot of technology counters, and a quick look at their current stance may help investors wade through the clutter.

For the country's tech investors, the broad themes include IT consulting and services, computer hardware, telecom equipment, integrated telecom services, media etc. This apparent diversity notwithstanding, the investment community is faced with a very basic question: Are there enough good companies to invest in? And it is not surprising that there are no straight answers.

A section of the fund managers will tell you bluntly that there are not too many quality players they can bet on. The more intrepid ones will not give up hope and will always look out for alternatives. But the fundamental issue is simple - - tech leaders are indeed few and far between, and not all of them will make money for you on the markets very quickly.

Among the current hottest investment ideas is BPO - - business process outsourcing. On a global scale, organisations are subject to considerable cost constraints, a situation that is believed to have helped local companies cater to their outsourcing requirements. India is said to offer the right measure of competitiveness when it comes to furnishing IT solutions for clients in other countries.

The problem, as some funds have taken pains to point out, is that only large companies will be able to benefit from the trend. The smaller entities stand the risk of being bypassed. The feeling is reflected in Franklin Infotech Fund's recent statement. It is argued that "only top-rung companies with brand equity will be able to grow at a good rate'' in the tech sector.

Zurich India MF, which has largely avoided making IT its biggest talking point even in the best of times, says it believes in buying stocks that are backed by good business models. ZI Equity Fund, for instance, recently added i-flex to its portfolio because of this reason. "Indian companies have achieved notable export opportunities in the areas of IT services and BPO'', the mutual fund has pointed out.

IDBI Principal (which, like Zurich, does not have a stand-alone vehicle for IT allocation) says that the offshore-outsourcing model will work as the US companies will latch on to cost-saving options. The fund believes that big companies will benefit as they have "track record, relationships, systems and scale''.

On another front, there is hope for those who go by inflows. Reliance MF's short-term fund has garnered over Rs 200 crore. A few days ago, HSBC MF has reported IPO collections of more than Rs 800 crore, the highest grosser in recent times. While the next few days are not likely to see any more initial offers, the market is waiting for Deutsche MF to make its first move.

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