MFs now fuelling infotech share boom

Going one step ahead, Kothari Pioneer is now thinking of launching an internet-specific fund. This scheme, which is expected to rake in at least Rs 200 crore, will invest funds in internet companies. “The fantastic valuations of some of the infotech companies have attracted mutual funds. Now a situation has come where too much money is chasing few shares,” said an analyst.

The astronomical jump of 3,000 to 4,000 per cent in some of the software stocks in the last nine months has left mutual funds software-struck. The combined market cap of Wipro and Infosys alone is over Rs 1,00,000 crore. A company like PSI Data which clocked a net profit of only Rs 4.34 crore has a market cap of over Rs 5,600 crore. Compare this with soap and detergent maker Nirma. It posted a net profit of Rs 170 crore but its market cap is less than half of PSI Data.

“The process will repeat. With funds going into infotech shares, there will be further rise in their prices. This will attract more mutual funds. It’s a chicken and egg situation. I’m not sure who’s driving the prices,” fund managers said, adding that market regulator SEBI should caution mutual funds against launching infotech funds in such a manner. Kothari Pioneer’s IT fund alone has around 60,000 accounts and an asset base of Rs 700 crore. So much so that even if the primary new issue market has failed to pick up, there is one consolation: the mutual fund sector is booming. Mutual fund mobilisation increased by 121 per cent to Rs 33,628 crore in the first nine months (April-December) of the current fiscal compared to Rs 15,189 crore in the corresponding period of last year.

With this, the mutual fund industry has surpassed the last year (1998-99) total mobilisation of Rs 21,377 crore. According to the Association of Mutual Funds in India (AMFI), the fund mobilisation in December was Rs 5,583 crore while total assets with the mutual fund increased to Rs 97,028 crore till December end.