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Calculated Moves

In the past six months, Birla IT has turned in 45% returns. Given the dynamics of the underlying market, the fund is likely to remain on a volatile trajectory. So, the faint-hearted should stay clear of it.

This fund salivates on small and mid-cap stocks. Its year-to-date return of 17.21% through June 7, 2002 is better than peers' 3.99% and the 8.90% fall of benchmark BSE IT Index. The reason: lately Birla IT fund (formerly Apple Platinum) has been fully invested.

Since the fund's launch was rather late when the tech rally was nearing its peak, it was forced to buy stocks at higher valuations. With 60% assets parked in top five holdings, it touched astronomical heights in early 2000.

However, when tech valuations were falling in the last quarter of 2000, this open-end tech opted for cash. In the next one year, its cash stake averaged around 30%. The rationale: Birla IT's extensive research didn't justify high prices. Hence, the fund was down a mere 19% against BSE IT Index's loss of 40% in 2001.

While technology stocks bleeded, it utilised high cash exposure to buy stocks cheap. Today, second-rung stocks like E-Serve International, Infotech Enterprises are top picks. The fund's strategy: irrespective of size of the company, look at the valuation and earnings potential of a company. Perhaps that is why Wipro is absent from Birla IT's portfolio. However, the fund had its share of missteps too- stocks like Gemini Communications, Innosoft Technologies figured in the portoflio for long, despite significant erosion in their value.

Strategic misfire apart, given the dynamics of the underlying market and its focus on mid-cap stocks, this fund's fortune could reverse, should the mid-cap stocks lose steam. And hence is likely to remain on a volatile trajectory. So, the faint-hearted should stay clear of it.