Last month we witnessed something we haven't seen in a long time. A sustained rally in software stocks. This has pulled up net asset values (NAVs) of infotech (IT) funds.

Open-ended, IT Funds	NAV(Rs)	Last week	Last month	Last year	Inception
Tata IT Sector Fund	9.3	-0.3%	16.8%	-45.6%	14.8%
K P Infotech (Gr)	24.4	-0.8%	14.3%	-39.7%	94.8%
Chola Freedom Tech (Cum)	13.2	-0.1%	13.9%	-30.9%	9.0%
IL&FS eCOM Fund (Gr)	5.3	-1.1%	13.2%	0.0%	-61.0%
Pru ICICI Tech. (Gr)	5.2	-1.5%	13.0%	0.0%	-46.8%
DSP ML Tech.com (Gr)	7.0	-1.4%	11.9%	0.0%	-18.6%
K P Internet Opport.(Gr)	6.9	-0.1%	11.8%	0.0%	-27.8%
Alliance New Millenn (Gr)	7.6	-1.8%	11.2%	0.0%	-50.0%
K Tech	6.1	-2.3%	10.6%	0.0%	-22.7%
UTI Sector- Software	14.6	-2.9%	9.8%	-30.0%	22.7%
Magnum Sector Funds-IT	12.3	-2.5%	9.5%	-51.8%	54.2%
Birla IT Fund (Gr)	13.8	-0.7%	9.5%	-52.5%	6.7%
Sun F&C Emerg Tech (Gr)	6.0	-1.0%	8.6%	0.0%	-30.4%

Quarterly results of leading software companies have shown that domestic software companies continue to be on a roll as far as fundamentals are concerned. In our meetings with mutual fund personalities, we have learnt that there is very little concern of the US slowdown affecting Indian IT. Sample what Mr Sunil Joseph (President, Director of Dundee Investment Management and Research) has to say in this regard, Our IT expertise does not include making software products, rather, we are service providers and are placed at the lower end of the ladder. So I do not see us getting affected by a US slowdown for at least 2-3 years, and I feel that way very strongly.

The link between Indian IT and the NASDAQ has also weakened considerably over the last month. While leading IT stocks on the NASDAQ have been declaring profit warnings, leading Indian software companies have performed admirably. This has highlighted the fact that what works in the US does not necessarily work here as far as IT is concerned, simply because the nature of work of both categories of companies is quite different.

However, it remains to be seen how long this delinking between domestic stock markets and the NASDAQ works. From an investment perspective, investing in IT funds at current NAVs makes sound investment rationale for the investor who is willing to take on risk to boost returns. For safer investors IT funds continue to remain a strict no-no.

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