Tipping point: Be wary of technology funds as sector takes a hit

The IT sector as a whole is witnessing headwinds like slowing growth and rising costs

Technology funds have taken a hit recently. The category has fallen -3.4 per cent over the past one week. Technology stocks took a hit especially on the day when Cognizant announced its results. The company revised its full-year guidance for revenue growth from 7-9 per cent in constant currency terms down to 3.6-5.1 per cent. This is its lowest growth projection in history. 

The IT sector as a whole is witnessing headwinds like slowing growth (especially in key markets like the US, whose economy is set to slow down) and rising costs. Sliding earnings growth has made the relative valuations of stocks within this sector appear high, making them vulnerable to a correction.

Investors should consult an advisor or do their research before entering tech sector funds.