Is this the right time for retail investors to look at IT ETFs?

With cost and tax advantages, supportive government policies, availability of skilled workforce and technological development contributed to the growth of the IT sector, information technology stocks have been a real game-changer for Indian investors in recent times.

Having said so, some advisers believe there is still scope for further growth in the IT sector which requires the tapping of various sectors to ensure it reaches its growth potential. “Given the current situation and the new normal which involves using technology and digitalisation to work from anywhere on the go, the IT sector is poised to grow in the years to come,” says Prashant Joshi, Co-founder and Partner, Fintrust Advisors.

Chintan Haria, Head- Product Development and Strategy, ICICI Prudential AMC, says “The Indian software industry is forecasted to cross the $100 Billion mark by 2025. Our dependence on IT for basic necessities of life is constantly growing and everlasting. Disruptive technologies such as cloud computing and data analytics are offering new windows of opportunities for Indian companies.” Furthermore, Indian IT companies are relatively inexpensive when compared to the US, making the Indian IT market very attractive.

Haria adds, “In view of all these, we believe, the optimal approach for an investor looking to participate in the growth of the India IT space can consider investing through an IT ETF that replicates the Nifty IT index which covers the top 10 listed IT players in the country.”

Decadal low-interest rates and the equity market crash in March made equities extremely attractive drawing an entire array of investors. Experts say, with markets reaching an all-time high, direct investing too saw a surge with a record of over 10 million new Demat accounts opening in the first 10 months of FY21. However, Joshi of Fintrust Advisors says, “taking learnings from the past we must say that spectacular rises can have breath-taking falls, and it can catapult any market into oblivion. And it is where the gullible investors are caught unawares losing the most.”

Hence, experts advice, while retail investors should participate in the market, they should not let emotions and random stock recommendations rule their investing decisions. Rather, to ride the market, one should invest through mutual funds or maybe ETFs which offer diversification benefits and better risk-adjusted returns eliminating any form of emotional bias and stock-specific risks, the pitfalls of direct investing.

Joshi says, “Thematic ETFs can also be considered by the investors having adequate knowledge and awareness of specific sectors.” There are many popular thematic ETFs available in India based on sectors like IT, banking, and other sectors as well. He further adds, “COVID has made the IT sector in specific extremely lucrative on the back of strong need for digitalisation of every aspect of a business and to make the business future-ready.”