Mutual funds have trimmed their exposure to information technology stocks by as much as 12 per cent in 2007 as a result of concerns over the appreciating rupee even as they bought more capital goods, banking and telecom stocks in the same period.
Of 151 equity diversified mutual fund schemes, 64 schemes (nearly 42 per cent) sold IT stocks and increased their exposure to capital goods, telecom and banking stocks. However, 77 schemes remained neutral on the sector or slightly raised their exposure to it.
Fund managers said they were now waiting for first-quarter results of IT firms, which begin with Infosys Technologies next Wednesday (July 11), to decide their investment strategy for the sector.
The rupee has appreciated nearly 8 per cent against the US dollar since January. This rapid gain depreciates the value of IT firms' revenues, much of which is earned in dollars (mainly from the US).
During this period, the benchmark Sensex rose 6 per cent, while the BSE IT Index, which includes heavyweights TCS, Infosys and Satyam, declined 12 per cent. Infosys lost nearly 19 per cent of its value this calendar year while TCS (down 12.50 per cent), Wipro (down 21.28 per cent) and Satyam (down 8.7 per cent) also saw their share values fall this year.
"It is a cautious approach. Fund managers have been overweight on IT stocks, which they have brought down to neutral. But very few have gone underweight on the sector. The rising rupee is a concern for the sector. The first-quarter results will be crucial," said R Rajagopal, head (equities), DBS Cholamandalam Asset Management.
Since January, DBS Chola Mid-cap Fund, managed by Rajagopal, has lowered its IT exposure from 7.65 per cent to 2.89 per cent of its total corpus.
Recent data from Value Research showed funds had offloaded IT stocks worth nearly Rs 930 crore between January and May.
Sundaram Select Midcap, which had given one of the highest returns of up to 60 per cent during 2006, has been one such significant seller of IT stocks. In April, it sold 35,520 shares of Megasoft and 300,000 Polaris Software shares. In May, it sold 1,130,000 Megasoft and 1,273,038 Mphasis shares. It also sold 54,400 Tech Mahindra shares in the same month.
The fund manages assets worth Rs 2,151 crore.
HDFC Equity Fund, which manages assets worth Rs 4,516 crore, sold 1,750,000 Satyam shares during May.
HSBC India Opportunities and DSPML Small and Mid Cap also narrowed their exposure to Mastek and Satyam in May.
A few funds also bought IT stocks during the period. However, the quantity of IT stocks bought by the funds was much smaller than the stocks they sold.
"IT stocks have underperformed in the last six months. Besides currency fluctuations, wage costs and taxation rules are also reasons. But a strong demand environment continues for IT companies and there just needs to be one small trigger for them to rise," said Soumendra Nath Lahiri, senior vice-president, DSPML Fund Managers.