Date: Wednesday , February 16, 2005
Geodesic Information Systems’ evolution as a leading product company and a software solutions provider did not pass without notice. Geodesic’s stock quote (GEIS.BO) on December 7 2004 was Rs. 677 on the Indian bourses. One month later it increased an enviable 36% to Rs.920. Geodesic is a literal dark horse when it comes to receiving attention from the ordinary investing public but has not escaped the notice of seasoned senior fund managers like Anil Sarin of Prudential ICICI Asset Management Company Limited. “It may be a revelation, but a smaller company like Geodesic which is not in our portfolio is doing better percentage wise than Infosys” reveals Sarin. He reasons that it is not in their portfolio because the company, which is run by a twelve-strong team would be more of a novelty than people can tolerate especially when it comes to their valuable savings. Further to be a part of a mutual fund, a company has to be of a certain size so that a mutual fund does not look like wearing a venture fund hat. This non-inclusion is also due to the extreme skepticism in people’s minds associated with product IT companies.
The top three companies in Prudential ICICI’s Technology Fund are Infosys, TCS and Satyam, cornering 29 percent of the allocation. The entry has been made with Infosys, NDTV and software product companies like I-flex and Subex Systems. PruICICI owns 5 percent of Subex, which operates in the field of mobile and wireline telephony, and Subex’s major strength was that it had total market share of all India operating networks. Animation majors are also included in the tech fund, with 80–85 percent of the CNX IT Sector Index or BSE IT Index being dominated by heavyweights like Infosys, Wipro and TCS by market capitalization. These superstars determine the tech fund’s returns.
NDTV is now a major money-spinner for the Technology Fund where the average price earlier was between Rs.85-94 but now it stands at Rs.139 a jump of nearly 64 percent, which was based on the talk that foreign investors would be allowed in that medium and the fact that its Hindi channel has pipped its arch rival in the Hindi news segment. A further trigger for the market is NDTV launching its new business channel ‘Profit’. The incremental cost for starting a TV channel is very low compared to the good return it gets which is a very good attraction for investors. That NDTV could be a major player is reflected in the major switch over of the discerning TV audience from other news channels to NDTV in 2004. 2005 could portend even better. Media business, especially TV channel business is a high upfront investment business for 2005, according to Sarin. Actually, the cost line remains moderate and the revenue line shoots up with the extra revenue falling to the bottom line. This means high operating leverage for the company in question.
After the peak of 2000 and the ebb of 2001-2002, technology funds have evolved and now the Technology Fund portfolio in Prudential ICICI is not limited solely to IT companies but now includes the media, pharmaceutical companies and telecom. Even though it’s defined as a Technology Fund, presently 13 percent is invested in non-technology stocks. The NAV performance for the Technology Fund last year was 40.75 percent.
Prudential ICICI’s investment philosophy:
Right time for a tech professional to get into mutual funds : Its good if you put one tranche every 15 days or a month and don’t deposit more than 30 percent of your equity investment in a tech fund. Sarin reveals that companies who are welcomed into their Tech Fund club is on the basis of valuation of companies, which is the ultimate yardstick for choosing a company and this determines the entry and exit decisions. Examine the volume growth while selecting companies even though the market and profit margin might be stagnant. Stress on the share prices could result if the dollar falls more than five percent in the next financial year. “Judging factor is the scale of recruitments going on in each quarter in the performing companies, which could then predict the volume growth. This indication could be the deciding factor for investors to choose their stocks among services companies.” In the case of product companies it would be important acquisitions made and order flows that could be the deciding factors.
Sarin reminds potential investors to purchase good companies at a lower cost and consider valuation as a filter. Don’t acquire faulty companies who rig share prices, even if they are very inexpensive. They may momentarily give you good NAV or appreciation but ultimately you lose out. “If you have high levels of risk appetite and want to play the game albeit not so safely then go through mid cap funds,” he says. In India there are not any Tech funds, which are purely mid cap oriented hence one could go for auto auxiliaries, textile or banks among mid cap funds. It would be better not to remain with a single company in the technology (services sector) and R&D arena but make investments as diversified as possible maybe with some product companies, some media and some pharmaceutical. Some diversity is good while remaining within the tech domain. Sarin recommends targeting niche companies as an investment option.
Well, tech people, if you can earn smart, learn to invest smart. Play the game prudentially.