A slightly weaker outlook for the rupee against the dollar also boosted sentiment in these stocks. Indian technology firms derive a majority of their revenues in dollars from developed markets.
The overall allocation of funds for the IT sector by the mutual fund industry jumped around 120 basis points (bps) to 9.2 per cent of total equity assets under management (AUM), according to statistics available with the capital markets regulator, Securities and Exchange Board of India. One basis point is one-hundredth of a percentage point.
India’s top equity funds have substantially increased their allocation to Infosys. For instance, HDFC
Top 200 and HDFC Equity, the country’s two largest equity schemes with AUM of a little over Rs 10,000 crore each, have increased their exposure by around 100 bps and 80 bps, respectively, according to the data available till January 31. Reliance
Mutual Fund’s Reliance Growth, Reliance Equity Opportunities and Reliance Regular Savings also raised their exposure in the range of 80 bps to 110 bps in January. “We have been positive on the IT sector. Relative to markets, shares (of IT companies) are cheaper. Expectations are low, currency is supporting and the overall global market is recovering,” said Sunil Singhania, head of equities at Reliance Mutual Fund.
Franklin India Bluechip Fund is betting big on Infosys as it increased its allocation by 135 bps.
Prior to January, fund managers had been bearish on technology stocks. For instance, from August to December last year, their exposure to IT stocks saw a steep decline from 9.71 per cent to 7.98 per cent. “IT is looking relatively better. With good cash flows and low expectations, it’s likely to do better than the domestic story,” said Anand Shah, chief investment officer at BNP Paribas Mutual Fund.
So far in 2013, shares of all IT majors have gained 13-30 per cent. TCS rose 26 per cent, while HCL Technologies
gave investors a return of 25 per cent. Similarly, shares of Satyam Computer
Services, Tech Mahindra
are up between 13 and 18 per cent on BSE. “The US markets have been doing okay. And in the European markets, due to margin pressure and competition, outsourcing was being preferred. I believe next year is likely to be better for the IT sector than the current financial year,” said Swati Kulkarni, executive vice-president and fund manager at UTI Mutual Fund.