Midcap IT funds underform benchmark indices

IT indices have underperformed the benchmark indices. While the BSE IT Index has grown about 10.4% in the last one-month and BSE Tech Index by about 6.8%, IT Mutual Funds have landed up giving just about 8.6% returns.

If you look at one-year returns, the BSE IT Index has fallen about 13.6% and Tech Index about 8.3%. IT Mutual Funds have fallen even more at about 15.5%. If you look at the top performers, Franklin and DSP ML Technology are the only two funds that have outperformed over a one-month period. All of them otherwise have underperformed their benchmark indices over a one-month period.

Key reason behind this:

Unlike the Index where there is a larger allocation to largecap IT stocks, most of these IT funds are invested heavily into midcap and smallcap stocks. If one looks at the portfolio breakup, 22% is in midcap stocks and 28% in smallcap stocks. If you also look at some of the midcap holdings, Infotech Enterprises has fallen about 25% in the last one-year, I-Flex Solutions has fallen about 25% and 3i Infotech has also fallen about 25%.

So, a lot of midcap stocks have not really given a good performance in the last one-year and have kind of pulled down the returns of these funds if you compare them vis-à-vis their benchmark Index.   

By Pooja Meswani, CNBC-TV18

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