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Sunday, July 08, 2001













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Kothari Pioneer Internet Opportunities Fund: Hold

Recommendation: Hold

Suresh Krishnamurthy

FRESH investments need not be contemplated in Kothari Pioneer Internet Opportunities Fund.

The fund is significantly overweight on technology sector stocks whose earnings in the near term are still subject to a considerable degree of uncertainty. In this backdrop, fresh investments need not be contemplated. The fund's NAV is Rs 4.70 per unit.

Investors can retain their exposures for two reasons. One, if technology companies deliver on their promise of reduced growth rates of 40 per cent or thereabouts, the potential for appreciation in tech stocks appears strong. In other words, there are reasons to believe that prices of frontline software stocks may have declined more than warranted and this may not be the time to bail out of the sector.

Another reason is that the exposure of an investor to the technology sector is by now likely to have declined to sharply low levels given the decline in stock prices in the recent past. In this backdrop, it may not be advisable to reduce their exposure further.

When the fund was launched in February 2000, we gave a buy recommendation on the fund based on two factors. One, the record of Kothari Pioneer Infotech Fund was impressive. Two, the promise of Internet-related opportunities. However, the basic assumptions behind an investment in the fund have changed significantly, necessitating a review of the investment decision.

Suitability: The recommendation to hold is applicable to investors whose exposure to technology stocks is now much less than the index weight of 11-13 per cent.

Performance: The performance of Internet Opportunities Fund compares favourably with other technology sector funds. However, it is disappointing for two reasons. One, the fund collected money during February 2000 when the market was at its peak and judiciously did not deploy a significant portion of the cash for a considerable period of time.

However, the stock selection does not appear to have helped. This has ensured that the fund has not outperformed technology funds, which was a reasonable expectation considering the cash position in the fund in April and May 2000.

Another reason why the performance is disappointing is that the fund has mainly remained a quasi-technology fund. It has always had exposures to the banking, consumer goods, and even the economically sensitive manufacturing sector. Still, the performance has not been superior to that of technology funds.


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Portfolio allocation: The fund is largely invested, with a cash position of less than 10 per cent. The fund has restricted its exposure to pure Internet plays quite substantially, to less than 2 per cent of the portfolio. In terms of sectors, the top exposures are software services, finance and telecom. In stocks, the top exposures are Infosys, HDFC, Hughes Software, HCL Technologies and HDFC Bank.


Section  : Mutual Funds
Next     : Birla IT Fund: Sell

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