Fund managers are betting big on the information technology (IT) sector. Sharp currency depreciation against the dollar, witnessed in the December quarter, and relatively better macro economic numbers from the US market, have bolstered fund managers' confidence of buying into the sector from the near-term as well from the long-term perspective.
Securities and Exchange Board of India (Sebi) statistics show for the month ended December 31, allocation of equity assets in software rose by double digits, 10.5 per cent, or Rs 17,871 crore. This made IT stocks fund managers' second-best choice after banking.
Moreover, during the October-December period when the rupee depreciated 8.4 per cent against the dollar, fund managers increased their exposure in the sector by 200 basis points (one basis point is one-hundredth part of a percentage point).
Sadanand Shetty, senior fund manager (equity) at Taurus Mutual Fund, says, "In the benchmark indices, several IT stocks have a substantial weightage and fund managers did not want to lose out. Rupee depreciation, along with positive macro-economic numbers from the US, made IT stocks a must buy during the December quarter."
Around two-thirds of IT companies' revenues come from the US market. Interestingly, during the December quarter, economists had even talked about the rupee reaching as high as 58-60 against the dollar. This also propelled fund managers to go for a buy, the as currency movement could drive companies' profitability.
However, fund managers say in such an uncertain global situation, their preference would be only with the large-cap IT counters - which have scalable capacity and have the US as the major revenue generator.
For instance, in software major Infosys, large mutual fund equity schemes and including HDFC Top 200, HDFC Equity, ICICI Prudential Dyanamic and Franklin India Bluechip have allocated between six and 10 per cent of their total equity assets.
Kaushik Dani, equity head, Peerless Mutual Fund, says, "There was skepticism till the September quarter about how the situation would pan out globally. But as the US economy started showing a relatively better situation, coupled with our depreciating currency, IT stocks became a natural hedge to overall portfolios. Though volume growth was stable, currency movement added an upside flip."
Fund managers say despite weaker guidance from Infosys, it's better to take buy calls in large-cap stocks, as pains in other sectors are deep. "Even with slow growth, IT looks relatively better," says the chief investment officer of a foreign fund house.
Other fund managers agree. "IT still looks better. Stocks are available at decent valuations," adds Dani. They add the rupee may continue to be in a weak zone, which will help IT companies. They see counters like Infosys, Tata Consultancy Services, Cognizant, Wipro and HCL scoring over mid-cap IT stocks.
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