Technology stocks -- Perspective and future direction

THE one stock market dynamic that has captivated investor attention worldwide has been the phenomenal wealth created by the technology sector till the early part of this year, and the subsequent decline.

And the question on everyone's mind now is -- where is this high-profile sector headed and what should we, as investors, do in the coming months and years.

Prospects: The days of double-digit growth for global technology leaders seem to be over and much of their invincible aura is on the wane. We can expect steady growth from the more successful companies, and margins coming down to normal/Old Economy levels. Indian software services companies, on the other hand, continue to power ahead. The general tightness in capital spending worldwide actually results in an increase in IT outsourcing, leading to increase in orders for Indian software companies with their high quality work and competitive pricing.

Reality check: Technology still remains one of India's most exciting sectors. But the difference between the time when technology stocks just hit the stratosphere, three years ago and now is this:

* At that time, few understood how strong the software growth story was, and even fewer had software shares as a significant part of their stock portfolio.

* Today, most investors already have a huge exposure to tech stocks -- either directly in shares or indirectly through equity mutual funds. This is why the phenomenal appreciation generated over the last three years in technology shares, the result of a one time, structural transition in investor portfolios, is unlikely to be repeated.

What should you do: First, stay invested in technology and ensure that your portfolio, either with shares or through funds, is more oriented to the toprung Indian software leaders which are growing faster than their smaller companies. Second, remain appropriately weighted. We believe that given the opportunities and risks inherent in this sector, software should comprise between 30-40 per cent of your equity assets.

Views expressed by Mr Vivek Reddy, CEO, Kothari Pioneer AMC in the performance report for November 2000.