2023: Buying assets on sale❗️ 💻🏷

Hindsight is 20/20 and looking back at the Indian markets, 2020, seemed to be the best year to buy equity; 2021 was the best year to buy real estate and the recent past 2022 was the best year to buy gold.

From the highs of Oct 2021, the Indian equity markets have not seen a significant rally and the only consistent factor has been the volatility. The war in Eastern Europe, the lockdown in China and increase in demand post pandemic in 2022 combined with the supply side constraints, resulted in rising inflation and the property prices have zoomed ahead while people’s budget for their dream home has fallen short. While this is on the consumption side, the REIT’s and InvIT’s were a good buy on the investment side for real estate, with the back to office and travel picking up. The gloom of recession in US, the inflation, the geopolitical tensions has made gold pricier and has been the best performing asset class of 2022 with 15% return.

All the above assets do find a place in an individual’s portfolio in the course of strategic asset allocation decision; the tactical moves to increase allocation to an asset during the unfavourable year definitely yields good results when the asset comes back in vogue.

So, for 2023, which is the asset class to buy into? This is a very easy thing to look back and point out in 2024, but tricky as of now. Views can be wrong and no one can do crystal ball gazing accurately and the popular saying goes, fools rush in where angels fear to tread. From an Indian market perspective, one of the asset class currently out of favour and hence a good buy during this year’s sale would be the IT sector in India.

You can buy the IT sector alone via a sectoral/ thematic fund and a good fund in this space would be the ICICI Pru Technology Fund

IT sector in India – via the ICICI Pru Technology Fund Direct Growth

The fund has it’s inception on Jan 2013 and 2023 marks 10 years of existence, it has ₹10,094 cr of AUM and 42.66% return in the last 3 years and 21.15% return in the last 5 years. The last 1 year returns have been negative. The fund’s return has beaten the benchmark S&P BSE IT used by Morningstar for their reports (fund’s actual benchmark is S&P BSE Teck TRI).

ICICI Pru Tech Fund Direct Growth – Performance (Source:Morningstar research)

The fund focused on the IT sector in India delivered stellar returns during the pandemic years of 2020 and 2021 – 71.69% and 77.76% respectively, but since then the returns have been negative. Post pandemic has been touted as a cooling period for the IT sector, people adopting a wait and watch approach to catch the sector back again on the next run. But so far this has not happened and the recession in US and Europe combined with the selling spree in the Indian markets by the FPIs has taken some sheen off from the domestic IT companies.

ICICI Pru Tech Fund Direct Growth Performance (Source: Morningstar research)

But some see this as an opportunity to enter and buy the IT sector; start accumulating at the low levels as you will never be able to time the next run accurately. An SIP approach is recommended. Minimum investment is ₹5000 and multiples of ₹1000 with an exit load of 1% of the investments <15 days.

The two sectors that are the focus of FPIs in the Indian domestic market are – the IT and the private sector banks. When the FPI are back on their buying spree again, these two sectors could be the first to benefit. Indian IT companies are cash rich, low on debt, fundamentally strong, export oriented, earning in dollars and hence benefits from a depreciating Indian rupee and appreciating dollar. And even during a recession, the IT sector has an important role as it is instrumental in enabling cost-cutting and automation.

The top 10 holdings on the fund as on 31 Mar 2023 is as below with Infosys having the largest share of 28%. The fund has 78% holdings in tech companies together with a small percentage of holdings in communication and allied industries. The fund is focused on the giant and large cap companies in the tech sector.

Top 10 Holdings of ICICI Pru Tech Fund Direct Growth (Source: Morningstar research)

Market cap distribution of ICICI Pru Tech Fund Direct Growth (Source: Morningstar research)

Till next post, take care !!

Disclaimer: Equity investments are subject to market risk; please ensure due diligence before investing


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