After fall, IT & pharma on funds' radars

Experts say these could be largely insulated if the markets turn volatile on account of global headwinds

Domestic fund managers are favouring stocks in the information technology (IT) and pharmaceuticals space, which have fallen by 10-25 per cent from recent highs.

Also, these could be largely insulated if the markets turn volatile on account of global headwinds, say experts. They feel IT and pharma could be good bets from a medium to long-term perspective and investors should consider exposure to these, through thematic equity funds.

This is a shift as until recent months, fund managers were reducing exposure to these sectors. The average return in IT and pharma funds in the past year had slipped into negative territory, with a loss of 5.9 per cent and 3.1 per cent, respectively.

The sharp correction in stock price has made these attractive again, say money managers. Vinay Paharia, a fund manager at Invesco Mutual Fund, says, "IT is definitely worth looking at. Valuation of the sector has corrected quite sharply and has come down much below the long-term average."

He says thematic funds are good, as they help you take full advantage of any big change. "But, investors need to be very cognizant of the underlying risks, as a single sector exposes an investor to much greater risk than a diversified equity scheme. If you are a seasoned investor and your risk appetite is high, you can increase exposure to such satellite investments around your core diversified equity investments," he added.

Gopal Agrawal, chief investment officer of Mirae Asset, says, "The pharma space has seen a severe beating in recent times but we believe the sector will bounce back, sooner or later. One must invest in such funds from a long-term perspective. We are looking at pharma."

There are six IT funds and four pharma ones. Interestingly, in the diversified equity schemes, several of the IT and pharma stocks have higher allocation. Infosys, Sun Pharma, HCL, Aurobindo Pharma, Tata Consultancy Services and Lupin are among the most sought stocks by equity fund managers.