Tech the brunt: IT funds lose up to 10% in the last three monthsIf you have invested in IT funds in the last 2-3 months, you would have some cause for concern. Tech funds have been the best performers in equity fund mart for quite some time now, and that has helped gain the attention of investors. But, IT funds have seen quite a bit of drop in net asset value in these last three months. Depending upon the fund, you would have lost anywhere between 7-10% in lump sum and between 2-3.5% in SIP investments in IT funds. Read on.

What’s happening

IT funds invest in technology related stocks listed in India and/or overseas. IT stocks are pretty solid. Some even feel that IT sector is defensive, because of which investors tend to take refuge in this sector when markets are volatile. Technology funds have done extremely well in the last 10-12 months, especially at a time when broader markets have fallen. You would have made handsome double-digit % returns in technology/digital funds in the last one year. But, some of those returns are vanishing, thanks to fall in underlying stocks.

  • SBI Technology Opportunities Fund, erstwhile SBI IT Fund, has lost 6.6% in last 3 months, and this has limited its 1-year gain to 25.6%.
  • ICICI Prudential Technology Fund has shed 7.2% in last 3 months and as a result, its last 1-year gain is near 25%.
  • Franklin Technology Fund has lost 8.5%, reducing its last 1-year gain to below 19%.
  • ABSL Digital India Fund has declined 9% in last three months, capping its gain in last 12 months to 22.4%.
  • Tata Digital India Fund, the newest scheme in this 5-fund category, has lost 10.2% in last months.
    All the returns are as on November 30, 2018.

Here is a snapshot of the returns below.

TECH FUNDS Returns %
Fund name 1-week 1-month 3-month 6-month Year to date
Aditya Birla Sun Life Digital India Fund (Erstwhile Aditya Birla Sun Life New Millennium) 4.21 -3.01 -9.01 -0.14 16.46
Franklin India Technology Fund 2.83 -2.47 -8.53 1.39 14.79
ICICI Prudential Technology Fund 3.52 -3.85 -7.24 3.6 18.74
SBI Technology Opportunities Fund (Erstwhile SBI IT) 3.36 -1.02 -6.6 1.62 19.34
Tata Digital India Fund 4.44 -2.69 -10.21 0.23 24.74

Strong rupee making IT stocks weak?

In the last one month, the Indian rupee has gained some strength against the US dollar. This may be making IT stocks a tad unattractive in the eyes of new investors. IT companies gain if the rupee is weak. Plus, in the last 10-12 months, IT stocks have had a great run, which may be prompting investors to book some profits in IT stocks. Since these stocks are held by by IT funds, there is an impact on their portfolios.

As we have explained before here, IT funds are not that different from each other since three to four stocks comprise a large part of tech fund portfolios. Tech funds are showing the same trend in the last three months because virtually all tech funds have the same stock universe to take exposure to. Usually the large-cap and mid-cap IT stocks are present in all portfolios, even though they are present in different weights.

Do remember second quarter earnings for tech stocks were a mixed bag. While revenue growth continued its upward trajectory for the fourth consecutive quarter and aggregate Tier-I EBIT margins (ex. Tech Mahindra) improved by 90bp QoQ and 80bp YoY, this was mainly driven by TCS and Wipro. All companies barring Infosys contributed to expansion. Significant earnings misses were seen in Mindtree, Hexaware and Persistent Systems. A high base or client-specific issues also led to some loss of steam during the quarter for some IT firms.

Check out how different IT stocks performed in the last few months below.

Returns %
IT stock name 1-month 3-month 1-year
HCL Technologies Ltd. 1.01 -0.15 19.69
Infibeam Avenues Ltd. 41.65 -80.52 -73.8
Infosys Ltd. 1.19 -5.74 36.76
MindTree Ltd. 11.51 -16.67 62.58
NIIT Technologies Ltd. -9.93 -19.6 70.55
Oracle Financial Services Software Ltd. -2.35 -17.57 -6.91
Tata Consultancy Services Ltd. 3.88 -5.48 49.28
Tata Elxsi Ltd. 1.35 -27.23 8.62
Tech Mahindra Ltd. 3.04 -3.55 44.29
Wipro Ltd. -0.87 8.6 11.22

Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Author
Rahul Sharma

Rahul Sharma is a contributing writer with RupeeIQ. He can be contacted on contact@rupeeiq.com