Kothari Pioneer Infotech Fund
Performance Report For the Quarter Ending March 2000
Fund Manager's Commentary
General Scenario
While early March saw new economy stocks hitting an all time peak, the end of the year witnessed a crash of sorts with many coming 30% to 40% of their highs. Worldwide, there are concerns over excessive valuation, antitrust ruling against Microsoft, and slowdown of FII inflow due to removal of Mauritius tax benefits all led to a major sell-off in technology, media and telecom. We expect that just like momentum took stock prices too high, the same principle is going to work in reverse as well to the point that they will soon start to offer great value.
From our point of view, there is no cause for concern in both the short and long term. While even the top rung companies have declined sharply, we believe that they will certainly recover, and recover first. Their underlying businesses remain strong, and prospects look good.
One of the reasons for the sell-off is the high correlation of Indian IT stocks to Nasdaq - which has no basis in logic. The Nasdaq is correcting primarily on account of the burst of the internet bubble... especially those dotcom companies in the business to consumer space. In India, there are no similar listed internet companies. Our technology sector is filled with the world's finest and fastest growing software services companies, which have achieved quality standards that very few in the world have, and they remain on a strong growth path.
Old economy remained largely untouched, although the bearish sentiment prevailing now may drag them down also a little. However, the downside risk in these 'value' counters and in pharma/fmcg stocks remains quite low, and they are a good buy for investors looking for a safe steady pathway in the stock market.
Furthermore, with interest rates likely to emerge lower after the CRR cut, investors should now be switching more to equities.
Fund Strategy
With the fund receiving strong inflows during the preceding month, the current scenario of rapidly declining stock prices offers an opportunity to stay invested in high quality companies that have demonstrated sustainable turnover growth and an ability to capitalize on new growth opportunities. Our endeavour will be to continue to focus on stocks with strong fundamentals.
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