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Technology Funds Gain More Ground

The technology rally is getting broad-based. And technology funds gained a cool 16 per cent over the month. Are they on the comeback trail?

For technology fund investor's year 2000 was a bad year. As it was in 2000 the tech bubble got punctured globally, and India was not behind. And 2001 proved to be worse, with an average 47 per cent fall in technology funds against a 53 percent declined in the BSE IT Index.

And in the recent week and month, technology funds have shown the usual sharp movement. But for a change, these sharp movements have been positive. Technology funds as a group bounced back by more than 16 per cent over the past month, with tech stocks gaining ground despite frightful macroeconomic and corporate news. And during the week, all technology funds gained sharply.

So, which is it? Are technology funds on a comeback trail? That's a tough call. Technology stocks and funds are subject to drastic swings. And it certainly is possible that this rally may be another blip before a sharper fall. But the recent weeks gain was also different in another way. Earlier, the large-cap tech stocks saw the strongest rebound. But this week, the surge was in the relatively battered segment of the tech stocks – the mid-cap stocks, reflecting broad-basing of the tech strength.

And the worst may not be over yet, for the technology stocks. One view is that technology pivotals will surge only when we get clearer signs of US economic recovery besides, the concern about still high valuation tech stocks even now.

That's for the near term. Longer term, most fund managers are bullish on technology stocks, as they are likely to be the first to benefit when the economy turns around. Still, you should consider buying or adding to a tech-fund holding only after asking yourself if you have long-term faith in the sector and if you believe your risk tolerance is high enough. If you answer in affirmative to both, then now might be a good time to buy into a tech fund. That's because while it may be difficult for an individual investor to identify good buys in this market, a good fund manager ought to be able to do so.

Fund Update: During the week, the market cheered in the few trading sessions -- gaining 120 points on the Sensex and similar gains on the broad-based National Index. The top gainers were – ING Growth Portfolio (11.3%), UTI Software (9.8%), Pioneer ITI Infotech (9.6%) and Alliance New Millenium (9.4%). The only losers were Tata Life Sciences & Tech (-0.5%) and Tata Select Sector (-0.2 %).