Birla IT's comeback after the technology crash of 2000 has been phenomenal. A 108 per cent return (as on November 26, 2002), post-9/11 market crash does make one sit up and take notice of how this fund has been investing. This perhaps could be the reason for Birla IT being the only fund with positive inflows during the current financial year.
Launched just before the technology rally peaked in early 2000, Birla IT, like its peers, was heavily concentrated in a few shares, with five stocks accounting for 60 per cent of its portfolio. But the market crash of 2000 forced the fund to rethink its strategy. Therefore, in the last quarter of 2000, the fund moved 30 per cent into cash. In 2001, Birla IT's portfolio comprised an average cash component of 33 per cent. High cash holdings helped the fund put brakes on the falling NAV. The reason cited by fund manager Anil Sarin was that he couldn't find any stocks whose prices were at justifiable levels.
However, cash proved to be more than a defensive tool, providing Birla IT an opportunity to take positions in companies like Infotech Enterprises, Mphasis and Satyam after the 9/11 crash. This helped it make substantial gains during the last quarter of 2001 when it made a whopping 70 per cent gain, as against the BSE IT Index's 46 per cent gain. This year too, in the last three months the fund has parked 20 per cent of its assets in cash.
Anticipating trends ahead of others has worked to the fund's advantage. Birla IT's strategy is to look at valuations and earning potential rather than what the market perception is. That also explains why the fund has been chasing mid-caps in the current year. Small wonder that Wipro doesn't find a place in Birla IT's portfolio since February 2002 and the fund never purchased speculative stocks like HFCL and GTL. However, some of its holdings, for example, Innosoft and Gemini — which the fund held for long despite significant value erosion — turned out to be dud picks.
Overall, in the past two years, Birla IT has done everything right. Whether it has been the use of cash or moving into performing stocks, the fund has been bang on target. Birla IT's performance bears testament to its stock selection skills in the IT arena.