Equity MFs continue to bet big on IT stocks

COIMBATORE: Even as fund houses reduced their exposure in traditional investment options such as banking stocks following the market crash in August, they continue to bet big on shares of software services companies.

Equity mutual funds (MFs) deployment in information technology (IT) stocks stood at around Rs 40602 crore in August, the highest ever in value terms. Fund houses had 10.27% of their equity assets under management (AUM) in shares of IT companies at the end of the month, data with market regulator SEBI showed.

Interestingly , the value of equity MF holdings in most sectors declined in August as the markets went into a downward spiral.The benchmark Sensex lost 6.4% while the broad-based Nifty decreased 6.3%. While most equity indices ended August in the red, the BSE IT index advanced 1.1% during the month.

The depreciation of the rupee against the dollar and lower volatility in IT stocks has made them an attractive investment option for fund managers, industry officials say. “We are bullish on the sector. It is reasonably valued and support is also coming from the currency (weak rupee)," says Sankaran Naren, CIO, ICICI Prudential MF.

The rupee depreciation (against dollar) has enhanced the earnings potential (of IT companies). The sector is also somewhat insulated from the volatility (in the markets), says A Balasubramanian, MD and CEO, Birla Sun Life MF.

Every fund manager has to adjust the portfolio to shield it from huge volatility and outperform indices such as Sensex and Nifty , he says. The IT sector has outperformed the market. It is one of the more defensive stories now, says Chandresh Nigam, MD and CEO, Axis MF.

The sector gets comfort from a lower currency and the rupee depreciation has benefited them, he says.

Equity MFs exposure to IT stocks hit a new high of Rs 38514.1 crore or 10.55% of the assets held by them in Febru ary this year.

IT bellwether Infosys is among the top picks of fund houses with over 350 equity MF schemes having an expo sure to the stock.

Equity MFs, which have a cumulative exposure in ex cess of Rs 12000 crore in Infosys, own over 5% of the company .

The overall deployment by fund houses in stocks drop ped 3.2% month-on-month (m-o-m) to about Rs 395509 crore in August, SEBI data showed.

Incidentally , money deployed by equity MFs in shares in creased 6.8% m-o-m to surge past the Rs 4 lakh crore mark for the first time ever in July .

Fund houses have increased deployments by nearly Rs 1.5 lakh crore over the past one year, a 56.3% jump.