Among the active and passive funds in the IT sector category, the worst-hit schemes are the ones investing in US stocks. Schemes like Edelweiss US Tech Equity FOF have fallen by 41% in one year. Mirae Asset NYSE FANG+ ETF has also fallen by 40% in one year. Among the schemes investing in Indian IT companies, Franklin India Technology Fund has fallen the most by 19% in one year. This is followed by Nippon India IT ETF and SBI IT ETF at -16% in one year.
Even the toppers in the category are also down by 10%. Fund managers believe that the situation may not get better in the near term, but the domestic IT companies are better placed than their international counterparts.
Tech giants across the globe are experiencing an early recession. According to Xpheno’s Active Jobs Outlook Report, the total available jobs in the IT Services sector dropped by over 50% year-on-year in October. The same report suggests that the net employee addition by giants like Tata Consultancy Services, Wipro, Infosys and HCL saw a 45% fall in Q2. On the global front Amazon and Apple are on a hiring freeze. Twitter recently went for mass layoffs and Meta is rumored to go for large scale job cuts as well.
“The Indian as well as global IT stocks have seen sharp corrections over the last few quarters due to higher valuations and the concerns over the global slowdown. The growth rate for the sector, however, is still holding well at mid to high double digits for most Indian IT companies. With global inflationary concerns still not abating, the IT spend growth rates are expected to see some mean reversion in FY24 as clients reprioritize and rationalize their budgets. Our fund has had a large cap skewed portfolio for almost a year now, as we expect large cap companies to be better positioned to navigate through these challenging times,” says Meeta Shetty, fund manager, Tata Mutual Fund.
Mutual fund managers say that even though the near term outlook looks rough, Tech stocks are likely to bounce back. They believe that disruptions in a more stable world will be fueled by tech stocks and hence the funds will reap the benefits. However, they say that since the sector is highly volatile, investors should assess if they can take the risk of investing in a pure tech fund or take exposure via a more diversified fund.
“In my view, usually, the narrative on the technology sector always oscillates between extremely bearish to extremely bullish; however, fundamentals lie somewhere in the middle. Until recently, we saw the tech-giants being resilient given their earnings stability, valuation, and liquidity. However, the weakening global economy may now have started to build expectations of a slowdown in their core revenues. We believe that this may impact their performance in the near term; however, the long-term secular thesis that over time innovation and disruption will be aided by technology in every sector and industry remains intact. If you can take the risk, stay invested or opt for a diversified fund,” says Niranjan Avasthi is the Head – Product, Marketing & Digital business at Edelweiss Asset Management Limited.
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