Tech funds NAV crashes 14% in one week

Tech funds NAV crashes 14% in one week
Jai Kumar NR

FEB 26: Thanks to heavy selling at the IT counters since mid-February, technology funds' NAV has eroded up to 14 per cent in just one week. During the period, software stocks received severe battering and BSE IT index fell by almost 15 per cent against the Sensex's fall of 7.15 per cent.

A pall of gloom descended the IT sector during the past one week with operators unwinding their forward positions and mutual funds turning net sellers, according to fund managers. The expectation of a service tax on software companies in the Budget and a weak Nasdaq have largely contributed to the fall in IT stocks, according to a mutual fund source.

In fact, stocks like Infosys Technology, Satyam Comp and HFCL have witnessed sharp erosion in prices and most of the funds, especially sector-specific, have high rate of concentration in these stocks. This is pronounced in the crash of NAVs (net asset values) in several of the sectoral funds.

There has not been any significant amount of outflow from the tech funds as most of the funds' NAV is hovering way below their par value. "Short-term investors have already made an exit and the investors who continue to hold on to these funds are long-term investors," said a mutual fund source.

Post-budget, software stocks may witness a rally as the markets have already discounted the likelyhood of a service tax, according to a fund analyst. Notwithstanding a slowdown in the US, the industry still has good growth prospects. Next fiscal, the industry is expected to grow at 40-50 per cent as most of the software companies have started looking at other markets besides USA.

UTI Software tops the list of losers. The fund's NAV has fallen by 14.64 per cent from Rs 14.14 on February 15 to Rs 12.07 on February 23. DSPML Technology.com follows closely with a fall of 13.56 per cent in NAV from Rs 6.93 to 5.99. Several funds, which were launched at the peak of IT rally in the year 2000, have been the worst hit. NAVs of these funds are still way below their initial public offer price of Rs 10.

Funds like Prudential ICICI Technology, Alliance New Millennium, KP Internet Opp Fund, Sun F&C Emerging Tech and K Tech currently have an NAV in the range of 5.14 to 7.51.

With budget only two days away, ICE stocks are plunging as never before. Invetsors wealth -- or market capitalisation -- of infotech stocks lost Rs 19,838.95 crore, or 11.75 per cent, during the bygone week to Rs 146,957.65 crore.

For investors, the saga of ICE stocks now seem to be a distant dream - valuations have come down to the original levels. With the ICE market cap falling by three-fourth (or over Rs 3,00,000 crore) from its 2000 peak, it's now abundantly clear that the party is over.

The fall of various ICE stocks from last year's pre-budget levels to the current levels has been steep. Share price of software leader Infosys has crashed from Rs 13,813 to Rs 5,598, Satyam from Rs 1,446 to Rs 317, Wipro from Rs 7,667 to Rs 2,501 and Zee Telefilms from Rs 1,603 to Rs 210. The benchmark Sensex has also charted a similar course.