Equity funds are pruning exposure to Infosys. Apart from the sharp erosion in price last month, 34 equity and sectoral funds, for which portfolios are available for December, dumped close to one lakh shares of Infosys on the bourses. While the figure is minuscule with the company's equity capital at Rs 33 crore (6.6 crore shares of Rs 5 each), equity funds are beginning to re-align portfolios and reduce dependence on the technology bluechip. Fund managers say Infosys has had a significant weightage in the past but they are now bringing down the exposure. Also, the dip in price has pulled down the cumulative investment of 34 funds by 26% from Rs 680.80 crore in November to around 503 crore last month.
"Infosys is a high quality company and fundamentally, nothing has changed. In fact, the company lived up to the expectations in the third quarter. However, the scrip today figures in every portfolio and unless you have new funds or institutions coming to the market and buying Infosys, it will continue to be rangebound,'' says a chief investment officer with a mutual fund. For the third quarter, Infosys reported a net profit surge of 125%, thus largely meeting analysts' expectations. "Investors are looking 3-4 quarters down the line and there is a fear that a slowdown in the US could impact top rung IT companies. Till the time, a clearer picture emerges, its prudent to reduce exposure to the top company of the Indian IT sector,'' adds the head of a leading brokerage house. According to fund managers, the IT budget for US companies will be finalised in the next two months and a clearer picture of order flows to Indian IT companies will emerge then.
Among some of the heavy sellers, Birla Advantage's exposure to Infosys stands reduced from 24% on November 30 to only 12% towards the end of December. Apart from cutting exposure, the over 20% drop in price in December has pulled down the value of investment from Rs 131.63 crore to less than 60 crore. Besides Birla Advantage, Magnum IT, Zurich India Equity, Templeton India Growth Fund and Kothari Pioneer Prima Plus are some of the other prominent sellers.
"Infosys is a known story today and hence, you cannot expect supernormal returns from the holding. A strong and sustained performance is impacting Infosys where everyone knows that the company will deliver and hence, there is no element of surprise. Fund managers now need to scout for unknown stories with strong growth potential,'' says a fund manager. Nonetheless, fund managers are eagerly waiting if the slowdown in the US impacts the likes of Infosys. "Any evidence to the contrary and announcement of large orders by (IT) companies is likely to lead to strong appreciation, especially after the melt down in valuations,'' says Aniket Inamdar at Cholamandalam Cazenove. Amen!!