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Tech blues

As technology stocks hit fresh lows, the losses in technology funds are mounting. Though assets under management have dropped dramatically, investors have little option but to wait for a Phoneix act

Its getting scary out there as technology funds plummet to fresh lows. With the Sensex losing another 116 points on Monday, the funds are bound to sink further. A depleting Nasdaq has triggered a melee in domestic technology counters and routed the net asset values of technology funds. As fresh profit warnings emanate from US technology majors, the fears of sharp cut in IT spend is beginning to look more real than ever. Unlike cheaper outsourcing by US companies, which would have been positive for domestic tech companies, an outright cut is bound to impact the Indian tech sector. Further, the Federal Reserve is yet to oblige the markets with another rate cut, which is widely seen as the only potion to recharge the US economy.

"As far as we know, things are not going to be as good as expected initially but not as bad as is being made out to be. Yet, the sentiment is poor and it is difficult to say when the market is going to be normal. The long-term trend is still bullish on technology sector though there may be problems for couple of quarters as some companies are in a restructuring mode,'' says R Sukumar at Kothari Pioneer.

The fury of a Nasdaq induced drop has been dramatic with assets under management simply washed away. The seven new generation ICE funds were launched around this time last year. A mega success with lakhs of investors, these funds had mobilised over Rs 2330 crore in 2000. Currently, their NAVs lie badly bruised, losing an average 51% from the initial offer price of Rs 10. In fact, funds like IL&FS eCOM and Prudential-ICICI Technology have lost nearly 60% of assets. The combined size of the seven funds now stands eroded by 53% or Rs 1239 crore at Rs 1095 crore. Most funds have also been hit because they are almost fully invested. For instance, Sun F&C Emerging Tech had less than 3% of its corpus in cash while Prudential-ICICI Technology was holding 6% of its assets in money market instruments on January 31, 2001.

Yet, every cloud has a silver lining. Even as NAVs have dropped like nine pins, funds have seen little redemption pressure. At the same time, the thought of burning their fingers in the ICE fury is keeping fresh investors at bay. "It is a good time to invest, especially for those who want to average out their cost of investment in 2000. On the other hand, investors do not want to redeem at such low levels,'' says a fund house official.

While the assets under management have suffered sharp erosion, the unit capital (number of units with the fund) has fallen by only 7% or Rs 163 crore. While Alliance New Millennium has bucked the trend with the fund receiving fresh inflows, Sun F&C Emerging Technology has been the worst hit and has seen its unit capital fall from Rs 257 crore to an estimated Rs 187 crore in February end.

Tech Blues
    IPO Mopup   Corpus**   NAV**
   (Rs Crore) (Rs Crore) (in Rs)
  Alliance New Millenium 540 396.83 5.89
  DSPML Technology.com 47 29.01 5.30
  IL&FS eCOM Fund 197 87.61 3.95
  K Tech 230 110.97 4.52
  KP Internet Opportunities Fund 555 329.86 5.72
  Pru ICICI Technology 509 296.77 4.02
  Sun F&C Emerging Tech 257 102.51 4.81
* On February 28 except Pru ICICI Tech
"** On March 2, 2001"