I am positive on the prospects of good quality IT stocks. While their fundamentals have always been strong, the valuations of some of them were getting stretched, which will come down to actual levels
06-May-2001 •Aabhas Pandya
Kothari Pioneer was first off the block with an information technology fund in August 1998. Since inception, the fund has generated an annualised return of 202.90 per cent with a 1:1 bonus and a 160 per cent dividend. Despite the sharp fall in software stocks in the last few months, the fund is still up 249 per cent in the last one year (as on May 5, 2000).
With a B.E. from University of Roorkee and MBA from IIM, Bangalore, R Sukumar has been managing the fund since inception and continues to be bullish on IT stocks. Sukumar is also managing the Internet Opportunities Fund, which collected Rs 555 crore during its IPO in March 2000.
Q. Where do you see the IT stocks heading after a sharp correction since mid-March?
Sukumar: I am positive on the prospects of good quality IT stocks. While their fundamentals have always been strong, the valuations of some of these companies were getting stretched. The recent correction has taken care of this.
Q. Do you think the current meltdown has separated the men from the boys?
Sukumar: I understand that there are 170 listed stocks and I suspect that about 2/3 of these do not have sustainable businesses and/or quality management. These stocks could continue to fall. But, for investors focusing on quality, the prospects appear to be bright.
Q. How do you see the companies with sound fundamentals performing this year?
Sukumar: Growth rates in the current year would continue to be high. Some Indian companies are getting into exciting high value added services and products. In the shakeout phase, good companies will gain at the expense of the weak players and consolidate their positions. There is enough scope to further move up the value chain for capable companies.
Q. The Internet Opportunities has fallen the least among the new generation technology funds and is currently down 14.6 per cent from its offer price of Rs 10. What are the fund's assets under management and how much has been deployed into equities?
Sukumar: The assets under management of Internet Opportunities Fund is about Rs. 500 crore. Over 50% of the initial issue collections have been invested. The large cash position has helped cushion the fall.
Q. Kothari Pioneer is bullish on Mahindra & Mahindra and holds close to 3 lakh shares in its Bluechip fund against a mere 25,000 shares in February. Why is Kothari bullish on M&M?
Sukumar: We have evaluated various parts of M&M like the auto business, subsidiary MBT and the other IT forays. We believe the company is grossly undervalued based on a sum of parts method. We are excited about M&M's internet focus on its core business which will result in better customer satisfaction and cost reduction as well as investments in IT businesses.