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US tech stocks have crashed 26% this year, should you consider investing in them?

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  • The US markets have fallen three times more than Indian markets, indicating a good entry point for investors to diversify funds globally.
  • Markets look attractive to invest in mature tech companies like Microsoft, Google and so on, say analysts.
  • However, they suggest staying away from new age tech companies and focus on only developed and profitable companies.
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The technology heavy index Nasdaq composite reported one of the biggest fall of 26% in 2022 so far across equity markets. While technology companies delivered record returns since the pandemic broke out, 2022 has been a year of massive reality check so far.

Two years later, nothing has changed except a disastrous war between Russia and Ukraine that has disrupted the entire supply chain of the world and spiked global inflation.

While the war has resulted in a huge increase in the cost of living, analysts say the fundamentals of these technology behemoths like Google, Microsoft, Apple have not changed.

Are US tech stocks worth investing in at the moment?
The answer to the question is yes and no depending on your risk profile. For people investing on their own directly in stocks, the risks can be on the higher side. However, for people investing through mutual funds, who handle retail investors’ funds and invest after thorough research, the risk level is notably lower.

Experts suggest staying away from new age tech companies that are yet to make their mark on the street, and focus on only developed and profitable companies.

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“Overall the tech sector has fallen quite aggressively in the US. There are two kinds of technology companies listed in the US – one is new age tech like Zoom, which have gone up only during the pandemic, and mature tech firms,” Neil Parikh, chairman and CEO of Parag Parikh Mutual Fund (PPFAS MF), told Business Insider.

“If you see in some of the new age companies there is no revenue or profitability but they are only funded by private equity and all. So with the rising interest rate that era is coming to an end. So these are some spaces to stay away from,” added Parikh.

Overall, the market looks attractive for mature technology companies.
“Mature tech is where companies like Google, Microsoft and Amazon, who have also fallen quite a bit not more than new age tech. They have a good revenue model and are more profitable and now at an attractive valuation,” added Parikh.

Price correction not the only criteria to invest in stocks

However, the steep fall in stocks from their peak should not be the only criteria to invest in a stock.

“Drawdown from peak should not be the only criteria. US markets rallied a lot more as well. In local constant currency terms, S&P 500 and Nifty 50 are at similar returns in the past 5 years while Nasdaq is still significantly better,” Gaurav Rastogi, founder & CEO of Kuvera, an online wealth management platform, told Business Insider

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“If you account for INR depreciation, then both S&P 500 and Nasdaq have performed even better in the last 5 years. So just looking at the recent drawdown is not enough. From a valuation perspective also there is no clear signal that US indices are cheaper than India,” he added.

Meanwhile some analysts expect additional fall in the global equity market, which would then emerge as a good opportunity for investment.

“As we believe that 5% more correction will occur then there is a good chance of accumulating at that time, we still have some pain left from our side,” said Ravi Singhal, vice chairman at GCL Securities.

Some thoughts on the US Tech crash $ARKK is now down about 70% from its highs made in Feb 2021,$SNAP is down 80% from highs made in Sep 21 same with $NFLX and most of the tech stocks FAANG is down about 30-40% from highs Is the bottom near? are we in capitulation?I think not, ARKK is mirroring the move we had in Nasdaq in the 2000 tech crash Nasdaq fell 80% during that time and it took years just to stabiliseOne may argue that this time is different, but I dont think these compnies are going back to their bubble highs anytime soon.

— (@onlyequities) May 27, 2022

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