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Budget-day rally spurs Tech funds

The budget day rally has given a fresh lease of life to the badly mauled technology funds. Yet, it is too early to predict a comeback as Nasdaq continues to hit fresh lows

A growth-oriented budget has rekindled hopes for a revival in fortunes of the beleaguered software funds. While the budgetary sops were largely spread across India Inc, it was the technology funds that stole the thunder with an average gain of 5.6 per cent as IT stocks went ballistic on the bourses. Yet, it remains to be seen how far the budget boost will propel these funds, most of which are below par. The top gainer in the IT category was UTI Software, which rallied by 84 paise or nearly 7%.

On the other hand, the category of diversified equity funds could manage only 3.31% with technology heavy funds emerging on top. For instance, ING Growth Portfolio was the chart buster for the day with a whopping gain of 8.92%. The fund had nearly 90% of its assets in TMT stocks as on January 31, 2001.

As many as seven technology funds were launched in 2000 and their IPOs were a roaring success, mobilising around Rs 2500 crore from lakhs of investors. Except for a brief spurt, all these funds have been languishing below par for almost a year now, with an average loss of nearly 40% from the initial price of Rs 10. Despite the budget day rally, a couple of funds are still below Rs 5, which means a loss in excess of 50% on initial investment.

While technology funds have a mix of software, telecom and media sectors, software stocks account for an average 70% of the portfolios. The budget has given a number of concessions to the software sector, which comes close on the heels of a superlative performance by most IT companies in the third quarter. While the budget did not levy the much-feared service tax on the sector, it has facilitated that companies with ADRs/GDRs may acquire shares of foreign companies worth up to $100 million or an amount equivalent to 10 times their exports in a year, whichever is higher. This could see to-rung Indian companies embarking on acquisitions abroad. The hike in FII limit to 49% has also come as a booster since well established IT companies are fancied by foreign investors. This will lead to fresh buying into their stocks.

However, fund managers believe that the budgetary incentives may only give a temporary reprieve to technology companies. "Markets are euphoric over budget proposals but we have forgotten the impact of Nasdaq. It may soon cast its shadow on Indian technology stocks,'' says S N Rajan, CIO, Kotak Mahindra AMC.

Surely, Indian technology stocks and funds need to withstand Nasdaq jitters if they have to resurrect themselves.