DSP MF launches open-ended exchange traded fund tracking Nifty IT index

Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Mutual Fund said, “The Indian IT sector has been a consistent performer in the long term thanks to the global competitiveness and edge that they possess which also bodes well for the foreseeable future. Investors looking to benefit from this long-term growth story may consider investing in the Nifty IT index which is interestingly poised after underperforming in the recent past. We believe that at current levels, valuations are approaching average multiples, and many companies in this sector appear financially healthier and relatively cheaper when compared to global IT peers.”

On Wednesday, Nifty IT ended at 29,025.70 up by 94.90 points or 0.33%. Tech Mahindra was the top gainer, up by 1.15%. Coforge, Wipro, TCS, LTTS, and HCL Tech also gained between 0.4% to 1%. Persistent Systems, Infosys, Mphasis, and LTIM were top laggards.

Here are the key highlights of DSP Nifty IT ETF:

1. The New Fund Offer for the DSP Nifty IT ETF opens for subscription on June 21st, 2023, and closes on July 3rd, 2023.

2. According to DSP MF, the Indian IT sector has been growing consistently compared to other sectors over the years and has increased its contribution to India’s GDP. Indian IT companies have also grown significantly above global peers over the years, which has also resulted in their growing market share. Indian IT companies also see less variability when it comes to earnings, reducing earnings surprises and consequently being rewarded with higher earning multiples by investors.

3. Further, the MF added that the IT sector also offers global exposure to revenue flows, which helps in diversifying equity portfolios away from domestic risks.

4. Also, the mutual fund house mentioned that the Indian IT sector also exhibits better financial strength through higher Return on Equity (ROE) and higher Return on Assets (ROAs) than its global peers, while being relatively attractive on valuation parameters like lower price to earnings ratios and price to book ratios.

5. For the last one and half years, the Nifty IT index has been underperforming the benchmark Nifty 50, and this has historically resulted in a turnaround in performance in the past market cycles, as per DSP. As per the data, in 2022, the Nifty IT index declined by 24.5% versus the Nifty 50 which gained by 5.7%. In 2021, the Nifty IT index jumped by 62.3%, outperforming the Nifty 50 which gained by 25.6%.

6. Accordingly, the weightage of the IT sector in Nifty 50 has also declined below its long-term average.

7. Nevertheless, DSP also highlighted that the Nifty IT index has outperformed the Nifty 50 on a rolling return basis across 1-year, 3 years, 5 years, and 10-year timeframes.

8. Nifty IT index is concentrated & predominantly large-cap oriented. TCS accounted for 26% of weightage in the index, while Infosys holds 24%, HCL Tech, and Wipro held 10% each. Tech Mahindra and LTI Mindtree hold 9% each, further, Persistent Systems hold 5%, Coforge and Mphasis hold 3% each, and lastly, L&T Technology Services hold 2%.

9. However, the mutual fund said, “Investors should bear in mind that the index presents sector and stock level concentration risks and that the fund can have higher volatility and drawdowns as compared to diversified equity funds. This fund can also underperform diversified equity funds in the short term.”

10. DSP Mutual Fund has an over 25-year track record of investment excellence. The mutual fund is managing money for over 35 lakh investors from all walks of life: hard-working salaried individuals, high-net-worth individuals, NRIs, small and mid-sized business owners, large private & public corporations, trusts, and foreign institutions.

Updated: 21 Jun 2023, 05:21 PM IST