Birla IT Fund: Cut exposures

Recommendation: Cut exposures

S. Vaidya Nathan

BIRLA IT Fund had a difficult year in 2000, with a decline in net asset value (NAV) of 50 per cent for the growth option and 40 per cent for the dividend option.

Though most technology sector stocks suffered similar or larger declines, the fund appears to have totally lost its track. Quite a few other funds had sharp declines, but managed to recover lost ground.

That was not the case with Birla IT Fund. What is also a cause for concern is that the fund's various schemes appear to have fallen apart, with no cogent effort to redeem the show. Though the Birla IT Fund seems to be going through a phase of portfolio restructuring, investors could be better off taking advantage of the recent improvement in tech stocks and any further uptrend to cut exposures.

Suitability: Sectoral funds generally carry a higher degree of risk, and technology funds more so. But a tech sector exposure is necessary if market-level returns are to be secured. Birla Mutual Fund was among the earliest entrants to the tech sector and had an impressive track record till 2000.

Based on this, a positive view of the fund was taken earlier. But the poor manner in which the fund handled 2000 and the yet unclear strategy make exit a better option. It may be better to switch to funds such as Kothari Pioneer Infotech Fund or the Alliance New Millennium Fund, which have handled the volatile market of 2000 better.

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Portfolio overview: The Birla IT Fund adopted the stocks favoured by the fund in its other equity-oriented schemes. Even with regard to weightage, a similar pattern was adopted. The fund was heavily weighted in Infosys and VisualSoft which have been in line with its strategy in funds.

Even now, Infosys, VisualSoft and NIIT account for around 42 per cent. The fund may have no problems with Infosys and NIIT, but VisualSoft appears to be a problem spot. The fund has, however, held the view that this is one of the best technology companies.

What is notable about the 2000 show is that Birla IT Fund managed heavy losses of 40-50 per cent despite a near 20 per cent plus weightage in Infosys. The Infosys stock suffered a decline of around 27 per cent -- much lower than other tech stocks.

This shows the extent to which the other parts of the Birla IT Fund portfolio have done badly. The fund appears to have sold out some exposures and has maintained cash of around 30 per cent in the last three months.

It appears to be adopting a wait-and-watch attitude. But, if the recent firm trends are any indication, the fund may be forced to stay with cash for a longer period. And if it takes investment positions now, it may be going back on its recent strategy. This could only portend more uncertainties regarding strategy.

Fund facts: The Birla IT Fund was originally the Apple Platinum Share of Apple Mutual Fund. It was taken over by the Birla Mutual Fund and re-positioned as a technology sector fund from December 1999. The fund offers entry with a load of 2 per cent on the NAV. It offers a Dividend Plan (NAV: Rs 12.68 per unit) and a Growth Plan (Rs 13.86 per unit). The fund had an asset size of around Rs 72 crore as of end-November 2000.