"If one can achieve an extraordinary valuation just by labelling something an 'infotech' company, there is something wrong. And trends built on vapour like this do not last too long," Kothari Pioneer Mutual Fund chief executive Vivek Reddy said.

He warned the investors that if someone whispered the name of a "hot" new unknown infotech stock that promises to double the money in three months, then one has to be careful.

"Infotech, communication/telecom and entertainment (ice) stocks continue to scale fresh highs day after day, however good or bad they are; almost every other stock continues to languish," Reddy said in the fund's performance report for February 2000.

"If you take out ice stocks, the market has pretty much gone nowhere over the past few years," he said.

Reddy said it almost seems that there are two completely and disconnected stock markets wrapped up within this broad market, each with a trend, direction and momentum entirely of their own. However, Reddy said this dynamic (rise in infotech stock prices) is not confined to India alone and is a world-wide phenomenon.

But, he said years from now, a few of these new economy stocks will justify their valuation, but most will not.

"But it's the search and hope to have those few winners that keeps the crowd and market hanging on to these momentum driven sectors," he said.

In this regard, Reddy said Kothari Pioneer Fund strategy is to retain the flavour of prudent diversification, even if it meant " we have to periodically trim the holdings in the IT stocks".

He said the appreciation in these (IT) stocks was making them take up a higher percentage of the portfolio.

"This trimming in the holdings may result in underperformance in the short-term, compared to funds who have gone very aggressive on their 'favoured sector' exposure". On the budget proposals on the various sectors, Reddy feels that fast moving consumers goods (FMCG) will be affected adversely by rationalisation of excise slabs, while pharma companies which export will have to pay income tax and MAT on export income and may experience some disfavour from the investors. However, he said this is the buying opportunity as both Indian and MNC pharma companies are available at rock bottom prices and will certainly perform well over the long-term. "After all, medicines are one of the most pressing priorities of mankind," Reddy said.