Axis MF has launched its Nifty IT Index Fund at a time when the sector is going through a cyclical downturn amidst global slowdown concerns. However, given the very strong structural tailwinds for the sector, buying into this near term downturn may be a wise long term bet to make.
Given its passive structure, the fund house has decided to adopt an index that has only the top 10 IT stocks. Foregoing mid and small cap IT stocks is a conscious decision, as that’s the space where you need more active management.
The last 5 years have seen the sector go through a full cycle – from less loved in 2018-19 to hot favourites after the pandemic and now back to less loved in 2022-23. Valuation bands of these 5 years give you a reasonable range to determine ideal entry and exit valuation ranges for this sector.
Sector funds normally have narrow tactical appeal. The IT sector however is very familiar territory for many Indians – it has a 25 year trading history, it touches our lives in many ways, most of us have friends or family that work in this sector.
With many sector and thematic funds (including the IT sector) demonstrating signs of decadal opportunities rather than purely tactical/cyclical ones, investors can consider them either for satellite or for core segments of their portfolio. It is important however to be clear about objective at the outset, and stick with the plan. Some sector/thematic funds also offer investors the opportunity to augment their exposure to high conviction sectors beyond what benchmark aware diversified funds provide.
Axis MF’s passives bouquet includes market cap oriented funds, sector/thematic funds and offshore funds. Product range will continue to grow and will also include smart beta funds. Important aspect is to make sure thatinvestors understand smart beta offerings as well as they understand simpler sector funds.