Tech stocks good picks for patient investors

If you feel that you have been trampled by the bear run in the stock market crash of 2000-01, having picked up tech stocks at their peak prices, then here are some words of encouragement for you. According to Gul Teckchandani, chief investment officer, Sun F&C Mutual Fund, the current valuations of tech stocks are not in tune with fundamentals and reality will soon catch up. He feels that present time is ideally suited for long term and patient investor, who should use this opportunity to buy into tech stocks for long term holdings.

According to Mr. Teckchandani the current year's budget was a pragmatic budget as it sought to stimulate growth and pursue economic reforms with a renewed vigor. However, the euphoria of a good budget was short lived as the stock markets fell substantially, largely in line with the fall in the global markets.

Since the last 12 months, the markets have fallen by more than 50%, after touching a 6,150 in February 2000. This fall, apart from the global meltdown, was exacerbated by the domestic technical problems related to some payment problems in the Calcutta and Bombay stock exchanges.

However the fundamentals of the Indian economy have not changed dramatically between February 2000 (index 6,150) and now. Moreover, India continues to remain a safe heaven for global investors, which is corroborated by the fact that the FII inflows, since January 2001, have crossed Rs. 10,000 crore. The fundamentals of the economy continue to remain strong and the markets are showing a lot of strength at current levels.

The services sector has had the highest, most stable, growth rate of 7.4% p.a. over the last 10 years. The services sector will continue to be an important driver of overall economic growth and productivity for India going forward. The share of the information technology (IT) sector within the services sector is expected to increase by leaps and bounds. With the US economy showing signs of slowing down, the Indian IT industry can see a further boost in business as many US companies have acknowledged an increasing trend towards outsourcing, and countries like India and China are expected to gain substantially from this development.

Mr. Teckchandani reiterates that the technology sector is India’s mainstay and we have a competitive advantage. Hence technology stocks should continue to do well. The software services businesses has not recorded negative growth, but the current valuation reflect the stock markets’ expectation that in all probability there will be negative growth. This, in Mr. Teckchandani's opinion, is only sentimental as the software sector continues to deliver on the fundamental front. So, according to Mr. Teckchandani, this is the time for the "patient long term investor" to buy with a medium to long term perspective, i.e. 6-12 months.