Tech stocks outlook: What makes tech stocks so hot for domestic funds

Tech stocks outlook: What makes tech stocks so hot for domestic funds


ET Intelligence Group: Domestic fund managers increased their allocation to technology stocks to a four-and-a-half year high of 10.5% of total portfolio in July 2020 compared with 8.7% in June and 8% at the beginning of the year according to the data compiled by Motilal Oswal Financial Services. The trend reflects flight to safety as other sectors seem to be more prone to the economic impact of the pandemic.

Based on the portfolio weight, the technology sector was ranked second in July compared with fourth in the earlier months. Private banks continued to top the ranking. Despite this, local fund managers were still underweight on the tech sector by about 300 basis points in comparison with the sector’s weight of 13.5% in the BSE 200 index. Of the total 20 funds, only two — Axis and UTI – were overweight on the sector.

Majority of the top tech companies have signalled a gradual recovery starting from the September quarter as their clients are fast adapting to tools that enable remote working. Gartner, a research and advisory firm, estimates that IT services spending will grow by 5-8% between 2021 and 2024 compared with an average growth of 4.2% during 2010-19.

The S&P BSE IT index has outperformed the S&P BSE Sensex by 8% in the past three months.

Among other sectors, the weight of the energy sector touched a record high of 9.7% in July following a sharp jump in the stock of Reliance Industries. On the other hand, the weight of private sector banks reduced by 490 basis points to 16.2% in July 2020 compared with that at the beginning of the year.

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