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Cash saves the day

All technology funds have not nosedived due to bludgeoning of technology stocks - some funds, with heavy cash holding, have only lost marginally

To escape the tech carnage, few tech funds have assumed last resort -- to remain in cash. "Call it the cash shelter!" Technology stocks have plunged to abysmal levels but investors in Tata IT Sector Fund are not complaining. It is no different for unitholders in Birla IT and Chola Freedom Technology. Well, courtesy high cash exposures, investors in the three funds are smiling amidst a widespread gloom. Even as most fund managers waited for an elusive turnaround in the tech sector and stayed almost fully invested, Tata IT fund managers were assiduously knitting a survival strategy around a high cash component. Ditto for Chola Freedom, which went into an overdrive with its money market investments since the beginning of the current calendar.

Thus, on the black Wednesday, when most tech funds simply caved in, Tata IT shed a mere 10 paise or 1.36% with its NAV settling at Rs 6.91. The fund had a whopping 83% in money markets on March 31, 2001. In other words, it was sitting on a cash pile of nearly Rs 20 crore while the top holding of MTNL had an investment of mere Rs 83 lakh! However, it is not just prudent management from the AMC. Tata IT was also very lucky to receive fresh investments of around Rs 10 crore in February. With the funds manager abstaining from investing inflows, the cash component got a boost and has provided the much needed cushion to NAV in a falling market.

"We took pre-emptive measures by steadily reducing our equity holdings across all schemes and thereby creating cash to invest at the appropriate time. We will be steadily investing over the next few weeks in stocks, which show good valuations and growth prospects over time,'' says Aspi T Contractor, CIO, Tata Asset management Company.

Chola Freedom Technology too hiked its money market investments from 37% in January to over 56% on March 31. The guarded investment has reaped rewards with the fund dropping just 4.6% yesterday. In the last one month, the fund has shed only 17.8% against the category loss of 24%. "We will continue to maintain our defensive investment strategy and stay away from mid and small cap tech stocks while adding more of quality stocks,'' says Aniket Inamdar at Cholamandalam Cazenove AMC. It is no different with Birla IT, which aggressively offloaded stocks in February and pumped up investments in money markets to a whopping 63% Rs 25 crore. The strategy has helped stem the slide, besides giving it the opportunity to buy top-tier stocks at throw away prices.

On the other hand, KP Internet Opportunities has been a contrarian of sorts. Despite cash holdings of just 7% and a 16% exposure to Infosys, the fund dipped only 6.8% on Wednesday. This is attributed to the fund's diversified bundle of top holdings, spread across HDFC, HDFC Bank, Bank of Madura, RIL and Mahindra and Mahindra.

Cash(ing) on Crash
    Cash Holding (%)  One-day Loss (%)
  Tata IT 83.00 -1.36
  Birla IT 63.37 -4.06
  Chola Freedom Technology 56.11 -4.67
  IL&FS eCOM Fund 16.88 -8.33
  KP Infotech 15.05 -11.03
  Pru ICICI Technology 11.44 -7.82
  DSPML Technology.com 11.26 -9.89
  Alliance New Millenium 10.77 -10.42
  Magnum IT 9.69 -9.77
  K Tech 8.61 -10.03
  KP Internet Opportunities 7.03 -6.84