Rajah Sukumar, the fund manager of Pioneer ITI Prima Plus – the large and mid-cap equity fund, is also the largest technology fund manager in India managing the Pioneer ITI's Infotech Fund and Internet Opportunities Fund. Besides being responsible for the Pension Plan and Pharma Fund. In his view the market is undervalued. Infosys is his top pick and he has moved out of Hughes Software for a substantial deterioration in fundamentals as the entire customer base of Hughes being affected badly showing no signs of even stabilizing, let alone rebounding.
The current investment strategy for the Pioneer ITI Prima Plus
The current investment strategy is to stick to long-term philosophy of investing in companies that are undervalued considering their underlying strengths of the businesses and ability of the managements to create wealth for their shareholders. It is also our endeavor to maintain the diversification of the portfolio and keep risks at reasonably low levels. Sticking to the philosophy means focusing on stock selection and bottom-up approach.
On the frequent changes in the portfolio in recent times showing high turnover. Incidentally, since July 2001, since the ban on badla trading.
Turnover has been higher than usual because of arbitrage between local and ADR/GDRs and also because of value based trading opportunities. Some front line tech stocks had huge swings during this period and we were able to buy at low levels and sell at higher levels.
The rationale for being totally out of Hughes Software, one of the key holding of the fund for a long time.
Hughes Software has seen a substantial deterioration in fundamentals, because of the problems affecting the telecom equipment segment. The segment has been affected so badly that leading companies like Nortel and Lucent seem to be showing no signs of even stabilizing, let alone rebounding. Since, we see that the entire customer base of Hughes being affected badly, we have lowered our price target based our financial models accounting for earnings drop as well as increase in risk profile. This is the reason to exit the stock.
The rationale for insignificant positions in unlisted holding -- Numero Uno, Quantum and Shoppers Stop.
These holdings have been written down as per our conservative valuation policy and hence are insignificant (based on our current valuation). We see a very good possibility of these businesses rebounding and hence we plan to hold on to these.
His outlook for the technology sector and stock preferences among them.
I am very positive on the prospects of top Indian IT services companies as I feel that they have inherent competitive advantages vis-à-vis US companies and I see them establishing their presence in all major global markets. I see growth accelerating to 35-40% over the next 3 years. Infosys is my top pick as a high quality IT services companies available at reasonable valuation. I like Wipro as a company but find the stock less attractive because of richer valuations. Though HCL Tech and Satyam in my opinion rank lower in terms of business profile, I like the stocks as they are attractively valued.
His favorite stock
Infosys is my top pick at this point of time due to the above reasons.
His favorite sector
I am a bottom-up manager. (However, I see the IT and the Pharma sectors throwing up the most opportunities in the long term because of their global competitiveness).
On the direction of the market now…
My view is that the market is undervalued. The current P/E ratio for the market is still way below long-term average. The reduction in interest rates should actually lead to a substantial P/E expansion, which has not happened. Market Cap as a percentage of GDP is close to a historic low. The risk-return ratios for bonds and gilts are very unfavorable and many investors would start moving to equities.