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<\/p>\nMutual funds (MFs) are betting on a turnaround in the healthcare sector to boost returns but are divided on the prospects of the information technology (IT) sector amid uncertain growth outlook.<\/p>\n
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At the end of June, all of the top 20 fund houses were overweight on the healthcare sector vis-à-vis the sector’s presence in the BSE 200 index, shows a report by Motilal Oswal Financial Services (MOFS).<\/p>\n
In the case of the IT sector, only six of the 20 fund houses had overweight positions.<\/p>\n
Meanwhile, the overall MF allocation in the technology sector has remained at a three-year low level of 9.3 per cent.<\/p>\n
“Uncertainties still remain in the IT sector even though the market is a bit relieved by TCS’ first quarter results, which shows that the situation may not be as bad as expected.<\/p>\n
“However, concerns remain over current demand slowdown and its impact on margins.<\/p>\n
“There are also uncertainties on the longer-term impact of generative AI technology on the Indian IT services industry,” said Ramesh Mantri, Chief Investment Officer–Equities, WhiteOak Capital MF.<\/p>\n
On Friday, the Nifty IT index soared nearly 5 per cent, logging the biggest gain in nearly three years on a ‘better-than-expected’ results by bellwether Tata Consultancy Services (TCS) eased concerns around the sector’s growth outlook.<\/p>\n
“We remain cautious on the India IT services sector. We believe FY24 will likely be a year of revenue growth disappointment and the much-anticipated recovery of operating margin would be delayed given weak growth,” brokerage Nomura said in a note.<\/p>\n
The fund managers’ bullish stance on healthcare is based on early signs of improvement in the US business environment and attractive valuations.<\/p>\n
“There are early signs of a turnaround in base business pricing for US generics, with the resumption of physical inspections by the US FDA leading to new approvals and growth opportunities.<\/p>\n
“Valuation, however, is at a discount,” DSP MF said in a recent report.<\/p>\n
Both pharma and technology were among the worst performers in 2022.<\/p>\n
While the Nifty IT index ended the year 26 per cent lower, the Nifty Pharma index declined over 11 per cent.<\/p>\n
The returns have improved significantly this calendar year, courtesy the bull run in the market.<\/p>\n
So far this year, Nifty Pharma and Nifty IT have gained 11 per cent and 8 per cent, respectively.<\/p>\n
Apart from pharma, fund houses are favouring the automobile and capital goods sector.<\/p>\n
Except for Nippon India MF and Tata MF, all other major fund houses have overweight positions in automobile companies vis-à-vis BSE 200, shows the MOFS report.<\/p>\n
In the case of capital goods, every fund house in the top 20 has over 4.4 per cent (the sector’s weight in BSE 200) allocation.<\/p>\n
Private banks, NBFCs and the consumer discretionary are the major sectors where most are underweight.<\/p>\n
Fund managers are also running an underweight of 160 basis points on private banks, which have the largest weighting in the BSE 200 index at 19 per cent.<\/p>\n