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Tech Driven

Diversified equity funds have had the largest exposure to the technology sector since long. But within this sector, funds are moving towards large-cap companies while dumping the mid-cap ones

Fund managers have always been attracted by the technology sector. And for this reason diversified equity category always had the largest exposure to the sector. Funds' exposure to this sector had remained above 13 per cent for quite some time.

But within the sector, funds have been increasingly switching towards large-cap technology stocks while dumping the mid-caps. In January 2005, of the total exposure of diversified equity funds to the tech sector, mid-cap technology stocks accounted for over 27 per cent. But this has consistently gone down to below 7 per cent by the end of August 2006. Mid-cap tech counters like Flextronics Software, Igate Global, Moser Baer have been completely exited by diversified equity funds. Apart from that, fund managers have also significantly reduced their exposure to many other mid-caps like CMC, HCL Infosystems, Patni Computers, Hexaware and Tata Teleservices.

IT bellwethers like Infosys have attracted the money flowing out of the mid-cap technology stocks. The investment in this tech major has grown more than three-fold since January 2005 and currently it accounts for a quarter of funds' allocation to the technology stocks. HCL Technologies and Bharti Airtel have also attracted a lot of money.

Another reason for this shift is that a few of the mid-cap stocks have actually surged to become large-caps over the last one-and-a-half year or so. This includes BEL and I-flex Solutions. From under Rs 5,000 crore in January 2005, the market cap of both the stocks has doubled over the period.