Our tech exposure remains bottom up: Arora

Alliance Capital, the US-based mutual fund major, a few ago put to rest months of speculation on the sell-off of its mutual fund, Alliance Capital (India), by reinstating its commitment to its Indian operations.

Alliance Capital Asset Management (India) manages over Rs 3,300 crore (Rs 33 billion) of assets, and has plans to invest in India through the India Liberalisation Fund.

Business Standard caught up with Samir Arora, fund manager, Alliance 95, to get his views on the mutual funds market.

What's your allocation to tech stocks and how do you find the valuations?

Our allocation to technology stocks is 10.5 per cent of the portfolio or about 16 per cent of the equity component. Currently we have 65 per cent of the fund in equity and the balance in fixed income.

In Alliance 95 Fund, our main technology exposure remains bottom up selections and include Mastek, E-Serve, Digital Globalsoft and Hinduja TMT.

Only two of these are directly affected by the slowdown affecting the overall software sector (impacting companies like Infosys, Satyam and others).

E-Serve International is actually a BPO company and its profits that came out showed a seven per cent quarter-on-quarter growth in revenue and a 16 per cent growth in bottomline.

For the year just ended, its profits increased by over 136 per cent. Also interestingly, E-Serve has a tax rate in 2002-03 of over 31 per cent unlike all other IT companies.

This rate is obviously very high as the company has a fair proportion of exports.

Hinduja TMT is also not software but a BPO company and is leveraged to the successful implementation of the new cable bill. Mastek - after it was cut in half in a few trading days - trades at a P/E of less than eight, and at these valuations even a growth rate of 10 per cent next year would be adequate to support the current price.

Digital Globalsoft - as per market rumours - may merge with HP ISO in India, which will make it the sole subsidiary of a $70 billion-plus IT company and therefore be the obvious beneficiary of all the business that the parent can send to India, plus its normal business.

Your portfolio appears to be overweight on banks? How much more steam do you expect in the sector?

We are overweight on banking stocks due to the low valuations, high ROEs (in high teens), huge unrealised gains, decent provisioning coverage and recent regulatory changes related to non performing assets. The dividend yield of the sector is also very high.

Unlike other funds, we also remain significantly weighted in HDFC Bank which is a longer term (10-15 years) story in terms of high quality management and growth, although, because of its existing high quality, it does not need or benefit from the recent regulatory changes.

There is ample scope for rerating in this sector as valuations are really low, both compared to other sectors within India and to the banking sector within Asia.

What makes you bullish on the auto sector?

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