While the Infosys sector occupied the top spot in the IT sector, it is time to welcome new players in the field, who bring a whole new array of ideas to the industry. While Infosys has stood by its unsaid motto of “under-promising and over-delivering”, wooing thousands of investors nationally and internationally, its position as the top player is now being considered history. With its lackluster performance in the market extending to three quarters, investors are now seeking to venture their investments in newer IT organizations that offer better investment returns. While loyal supporters still continue their standing behind Infosys, it is important to observe that organizations like TCS and HCL have accumulated greater rewards for investors than that offered by Infosys for three consecutive years.
In spite of this shift in trend, mutual funds continue to offer their full-fledged support to Infosys, owing to the fact that it is the second most widely held stock, after ICICI Bank, holding a large chunk of the market in its expert hands. On the other hand, TCS is placed at the 6th spot, while HCL is only at the 45th spot according to the recent market data. Also, one cannot ignore the fact that many prominent and rising names in the IT sector do not even make an appearance in the top 100 stocks owned and managed by mutual funds. Several mutual funds continue to give their extended support to Infosys, while other mutual funds steer clear of making investments in any other IT company, thereby devoting their IT stocks solely towards Infosys.
This can be viewed as a disturbing trend as mutual fund investors require greater diversity against their investments, which is not just restricted by the safe, and thereby, less profitable organizations. Thus, fund managers end up playing safe in this context, expecting their fund to move solely with the flow of the market. While this strategy may help reduce risks for an investor, it also reduces his capability to generate better returns for his investment, which is often desired from an actively managed fund. Moreover, a keen observation also proves that Infosys receives the highest allocation, defeating the concept of diversification, as though there aren’t any other good IT stocks in our market.
In such a scenario, one can note that many new and diversified entrants in the market are benefiting from the early days of glory enjoyed by Infosys, as mutual fund experts claim that for a mutual fund to acquire the maximum profit and reduce the risks involved in its investment, it is mandatory that not more 5-6% of investment must be made in a single stocks, while not more than 15-20% of funds must be invested in a single sector. While some mutual fund houses like the State Bank of India and HDFC Prudence have stuck to this basic tenet of market profitability, it is important for investors to observe the diversity of the mutual fund they seek to make an investment in, so as to acquire higher returns against less concentrated risk. This is because no matter how profitable a mutual fund scheme may seem from the exterior, diversified mutual funds can only take your investments to the top. Debts like personal loan, home loan etc, will be the last options for you to opt for if you have lost your investments due to uninformed decisions. Diversification reminds us of one saying- Do not put all your eggs in one basket. One of the main advantages of diversification is also the fact that if any fund under performs it is obvious that your returns might be low. But, if your funds have been invested in good performing funds at the same time, your returns are bound to go up but in the overall, your fund account will be neutral without losing drastically.