The Hindu Business Line : Equity funds with IT bias survive meltdown

IT may be of small comfort to the investors who placed their faith with technology sector funds when IT was the flavour of the season in 1999. But equity funds with a technology bias have been the only survivors from the market meltdown of the past 50 days.

The period from May 7 (when pollsters were still blithely predicting an NDA victory) to date, has seen equity indices such as the Sensex and the Nifty shedding 16-17 per cent in value. Diversified equity funds have had 10-23 per cent shaved off their net asset values (NAVs) in the same period.

In the period between March and May, most equity fund managers bet the Sensex and Nifty by loading up on mid-cap stocks outside the index basket.

But this ruse has not worked since, as mid-cap stocks have joined large-caps in a sweeping collapse in values.

A majority of equity funds have still managed to beat the indices between May 7 and now.

But while eight out of every 10 equity funds outperformed the S&P 500 index; only five of 10 managed to do better than the Nifty. IT sector funds are bunched up at the top of the return rankings for all equity funds, losing 2 per cent of their NAV, while the average equity fund lost a weighty 16.5 per cent.

Predictably, among the diversified funds, those that were packed with oil PSUs and banking stocks bore the brunt of the fall.

Those with a bias towards IT, pharma and FMCG stocks got away relatively lightly; as these sectors held their ground better than the others.

Many of the newly launched "India Opportunities" funds floated to the top of the return rankings over this period.

As these funds seek to capitalise on the outsourcing boom, their key exposures were to IT, pharma and automobile stocks.

There were no marked differences in returns between funds that invest mainly in mid-cap stocks and those with a large-cap bias.

Diversified equity funds, which best managed to contain negative returns for the period were Sun F&C Personal Taxsaver, Sun F&C Value Fund, Birla India Opportunities Fund and GIC Growth Plus.

But remember, these funds do not necessarily have a good long-term track record.

As always, most funds with a reasonable five-year record figured in the middle, rather than the top, of the return rankings.

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