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Technology as a category stood out as the only oasis for mutual fund investors this calendar, as it managed to deliver double-digit returns to investors over the last one year.
Despite strong volatility in the broader market for much of 2018, all the five IT-focussed mutual funds – Tata Digital India Fund, SBI Technology Opportunities Fund, ICICI Prudential Technology Fund, Aditya Birla Sun Life Digital India Fund and Franklin India Technology Fund – have delivered returns between 18 per cent and 36 per cent between December 12, 2017 and December 12, 2018.
Infosys, Tech Mahindra and Tata Consultancy Services were among the top holdings of Tata Digital India and Aditya Birla Sun Life Digital India schemes as of November 30, 2018.
Besides Infosys, Tech Mahindra and TCS, Franklin India Technology Fund also held HCL Technologies and eClerx Services among its top five holdings.
Fundamental factors as well as a weak rupee helped IT stocks outperform the broader market this year, said Prasanna Pathak, Fund Manager-Equity at Taurus Mutual Fund.
"On the fundamental side, growth (a key element) was missing in the IT sector in general for last 2-3 years.
Hence price-to-earnings ratios had contracted for most of these companies and even larger companies were available at 10-15 times earnings on a trailing basis till almost the middle of FY2017.
These were typically debt-free cash-rich companies, generating huge cash and quoting high capital efficiency ratios as measured by ROE and RoCE.
So, there was a clear valuation mismatch vis-à-vis other sectors and companies though for a valid reason, which was lack of growth,” he said.
The BSE IT index rallied 32 per cent in last one year, while Sensex gained nearly 6 per cent.
Stocks like Nelco, Infinite Computer Solutions, NIIT Technologies, Intellect Design Arena, LT Technology Services, TCS and Tech Mahindra gained between 38 per cent and 93 per cent since December 12 last year.
“Growth has returned in the IT space in last 3-4 quarters; there have been large deal wins, managements are turning positive and companies are announcing share buybacks.
Stocks returns in the last 3-4 quarters have been a combination of earnings growth and PE re-rating.
The earnings momentum continues for now, management commentaries have been positive and, hence, sector outlook continues to be positive though the outperformance may shrink.
Rupee movement will also remain a key factor,” Pathak told ETMarkets.com.
Other categories such as equity largecap funds and schemes focusses on overseas stocks gained 2.68 per cent and 1.66 per cent, respectively, in last one year, data available with Value Research showed.
Source: www.valueresearchonline.comPharma, multi-cap, ELSS, value-oriented and infrastructure funds have delivered negative returns during this period with an average dipped of 1 per cent to 17 per cent.
Wild crude oil price movement, global trade tensions, rupee volatility and default by a leading NBFC mainly dented market sentiments in 2018.
There are expectations that the market may remain volatile till the general elections in 2019.
Meanwhile, in the debt fund space, schemes across categories have fared better with 4-7 per cent returns.
Liquid funds, on an average, advanced 6.84 per cent during the past one year, followed by ultra short-term funds (up 6.17 per cent), long duration (5.77 per cent), short duration (5.36 per cent) and medium duration funds (5.02 per cent).
Lakshmi Iyer, CIO-Fixed Income Head-Products, Kotak Mutual Fund said, “Softening crude prices, lower consumer price inflation and US treasuries moving southward due to perceived global slowdown fears contributed to the outperformance of debt funds.
We believe yields should remain stable and supported.”
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