'Investors should stay invested for 2-3 yrs in IT funds' | Economic Times

ICICI Prudential Technology Fund has offered around 125% in the last one year. Shivani Bazaz of ETMutualFunds.com spoke to S Naren, ED and CIO and also the fund manager, to find out what’s in store for these funds.ICICI Prudential Technology Fund has given over 125% returns in the last year. It’s way above the category average. How did you manage this superlative performance?Over the last one year, the performance of ICICI Prudential Technology Fund has been made possible by the robust returns generated by mid and small cap technology companies.The portfolio had a significant exposure to names from these pockets. Most of these portfolio companies gained due to increased demand for digital services as work from home began.Technology funds had a great run in the last few years. 2016 was the only year when these funds gave negative return. How do you view this record?The last 7-8 years, the sector CAGR has been 15-17% per annum, but was fraught with ups and downs which were largely stock specific in nature. We believe this trend is likely to sustain and technology companies could continue to see 7-8% dollar growth and an EPS growth of 11-12% in the medium term. Hence, we expect funds operating in this space to generate compounding returns broadly in a similar range.Is IT sector becoming an evergreen sector?Our dependence on IT for basic necessities of life is constantly growing and everlasting. Digital technology adoption is becoming pervasive in almost every sector. Disruptive technologies such as cloud computing and data analytics are offering new windows of opportunities for Indian companies. As a result, IT sector is likely to be on a growth path from a near to medium term perspective as technology spends would continue to gain share for every corporate.Investors have been bullish on the IT sector due to Covid and higher spending on IT. How long do you think the trend will benefit the sector?The pandemic has accelerated the adoption of digital and cloud technologies by at least 3-5 years. We believe this trend is likely to continue and say over the next five years, IT industry could see better growth rates as compared to pre-covid growth levels.The global economy may do better than the Indian economy due to covid situation. Are IT funds well positioned to benefit from it?In case of ICICI Prudential Technology Fund, 85-90% of the portfolio holdings are businesses that have significant exposure to the US and European markets. Hence, the fund is well positioned to capture this.What are the challenges likely to be faced by the industry in the near future?The key challenges in the near term for IT companies are likely to be excessive wage inflation and Covid related delivery challenges.What would be the advice you would give to IT fund investors?Investors who wish to invest in technology fund should ideally stay invested with a minimum 2-3 year perspective. This is because digital as a theme is likely to fuel growth in the near term which is a positive for the sector. In terms of ICICI Prudential Technology Fund, we invest largely in high quality companies, with an aim to provide steady returns from a medium-term perspective.