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Beware! Technology Rules Again

Technology fund stocks make a comeback with a 32 percent gain during November. But its dangerously tempting since it prompts you to time your entry and exit.

Technology stocks staged a comeback in the past month. They are up 32 per cent on the BSE IT Index and even the technology fund numbers also reveal that -- 13 funds in Value Research Technology Fund category gained an average 22 per cent in November. And this is the second consecutive month of positive returns from the technology funds as they gained 11 per cent in October. However, despite the sharp gain last month, year-to-date they are still down an average 42 per cent through November 29, 2001.

Is it cheap? Technology stock prices may not be outrageous given the rapid growth rates of these firms but they don't leave a lot of room for error, either. Although the valuation risk implicit in most tech stocks has certainly declined since the peak last March but it still exists. But the long-term picture for these stocks remains bright. The solidity of their business model is firmly in place. As the productivity benefits are simply too large to be ignored for long, because any company that does become more efficient by doing things like paring inventory, automating administrative tasks and many other activities will have a very real advantage over competitors that have not implemented similar strategies. Besides this, it presents an opportunity for Indian technology companies, for India remains the low cost destination for technology solutions.

The sharp spurt in a brief period is dangerously tempting since it prompts you to time your entry and exit. But as has been experienced before, it generally turns out to be a loser's game as it tempts you to buy high and sell low, for a simple reason - you buy when it's at a high with zooming interest and sell at a low when its actually time to buy. Eventually, you end up with a deep hole in your pocket.

So, how does one ride out the volatility in technology funds? One, if you believe in technology's long-term prospects, then you ought to be a long-term investor in the sector. Two, rather than rushing with a one-time investment in a technology fund, invest a regular amount every month. Commonly referred as systematic or regular investment plan (SIP), it is a simple yet wonderful investment tool for riding out the intermittent volatility on the bourses. Today, all technology funds offer SIP.

Fund Update: During the week, the market gained a mere 29 points on the Sensex and 14 points on the broad-based National Index. Of the 104 equity open-ended funds, 81 funds moved up during the week. The top gainers were - ING Growth Portfolio (5.86%), Pioneer ITI Prima (4.10%) and Pioneer ITI Infotech (3.67%). The top losers were Escorts Tax Plan (-2.44%), Birla MNC (-1.04%) and Escorts Growth Fund (-1.02%).