Mutual funds are loading up on information technology (IT) stocks on improved valuations and low downside risk after a double-digit correction in top companies like Infosys and Wipro, stated a report by Business Standard.
As per the market daily, IT stocks were MFs' top sectoral buys in April when they invested a net of ₹2,100 crore. In the first four months of 2023, the net investments in IT amounted to ₹9,500 crore.
Infosys, which has had the steepest correction among large-cap IT stocks (down 19 percent in the last six months), was MFs' top stock pick in March and April, informed BS. It further noted that MFs added 30.4 million Infosys stocks in their portfolios during the period.
Analysts told BS that while the IT sector may see the pain in another couple of quarters, stocks are attractive as the downside risk is limited and most negatives are already priced in.
"We are positive on the sector and have been urging clients to buy. The sector has under-performed the index for the last 18 months and we believe that the bottom has been made. Valuations are close to the pre-pandemic level, at least for Infosys. Others are available at a 5-10 percent premium but that's justified due to a strong demand environment," said Vibhor Singhal, director, Nuvama Institutional Equities, was quoted as saying.
"Valuations are now reasonable. While the benchmark indices have gone back to all-time high levels, IT stocks are trading significantly lower than their post-pandemic highs. Given that these companies have a proven long-term track record and great management, the fund managers seem to be doing the right thing," Rahul Jain, senior vice-president-research, International Money Matters, was also quoted as saying in the report.
Apart from the attractive valuations, experts said that the inflows of MF money into IT stocks are due to the rebalancing of MF portfolios to bring the IT sectors' weight closer to the index level. The brokerage pointed out that the difference in the IT sector's weight in MFs and BSE 200 has come down from 2 percent to 1.6 percent in the last two months., it added.