The Hindu Business Line : Birla IT Fund: Hold

INVESTORS in Birla IT Fund can stay invested for now. It may not make sense to pare exposures at a time when some amount of panic has gripped the valuation of IT stocks. It may be better to wait out for some signs of consolidation, which can be used to cut exposures in the fund.

Birla IT Fund has been the top performer among IT sector funds in the last three years. The fund has lost value for much of this period. The only saving grace is that is has shed less than other IT-focussed funds. Holding cash in 2001 and going for the second line stocks such as MphasiS BFL, E-Serve, Digital GlobalSoft ahead of most of the other funds has helped in this regard.

Given the rather uncertain outlook for the sector as a whole, it may be better to move out of the sector fund. Over the next year or two, the growth rates may not lead to any significant ramp-up in the valuation of IT stocks.

Quite a few frontline companies such as Hughes and Wipro have come up with indifferent numbers. Infosys has stayed in line with its conservative earnings and revenue guidance. Infosys, Mphasis BFL and i-flex Solutions appear to be the three companies set to ride out of the storm with some degree of comfort.

Notably, Birla IT Fund has managed to drop stocks such as Wipro, Satyam from its portfolio between December and February and pared exposures in Infosys and Mastek. This has helped it avoid to an extent the bloodbath last week, especially in Infosys, Mastek and Satyam.

Suitability: As with all sector specific funds, Birla IT Fund carries a high degree of risk. The IT sector also has a higher risk element than compared to other sectors. The volatility in the prices of IT stocks is considerably higher than the rest. This is one reason why IT stocks attract high trading volumes on account of day trading intensity. This also adds to the uncertainties in such a fund.

The stability that has emerged in Birla IT Fund's investment strategy in the last 18 months or so after struggling to cope with meltdown in 2000 is a factor of comfort.

This is strictly a fund for investors with a higher appetite for risk. Even such investors may be better off looking at profit-booking opportunities if the IT stock prices show signs of recovery or even consolidation. Investors may be better off in the dividend option as dividends are exempt from tax.

Portfolio overview: The following are the significant pointers from the portfolio over the last one-year:

The fund has generally remained more or less fully invested with close to 90 per cent of assets in equities. This is unlike its strategy in 2001 when it opted for a sizeable cash position.

The latter did help in weathering the downtrend and contributed to the fund's improved performance vis-à-vis its peers.

Barring Infosys, which has remained the top holding, the fund has largely stayed clear of other frontline stocks. Stocks such as Wipro and Satyam did form part of the portfolio for a few months in second half of 2002. But subsequently, these exposures have been cut out completely.

The focus on stocks such as E Serve (which briefly in 2002 was the top holding), Mphasis BFL, i-flex Solutions, Digital GlobalSoft have helped pep up the performance.

The fund has also partially benefited from its Mastek exposures. It has cut its exposures in the stock partially. But on its present holdings of about 9 per cent, it would taken a sizeable knock as the Mastek stock has taken a 40 per cent knock.

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