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Dipan Mehta, Director, Elixir Equities, says the software services industry faces challenges due to a lack of innovation and transition to new technologies. While some mid-cap companies may experience growth, the industry is generally in a slow-growth phase. Investors should consider new-generation software and platform companies with differentiated business models for better returns, as traditional firms may not deliver significant value. What is your take on some of these crude sensitive sectors given that crude prices have cooled off from elevated levels? Whenever we see a spike, all reports keep flowing in with a target over $100 per barrel mark. But the price movement is showing a reversal right now. Which sectors offer valuation comfort now?Dipan Mehta: No, crude has not had much of an impact. It is rallying because of the Iran-Israel skirmishes and the subsequent correction has not had a material impact on any of the stock price movements. Investors do not feel that that is a major threat or a major benefit for any particular sector and over time, the importance of crude, its impact on inflation, and its impact on material prices in India is reducing. The focus is elsewhere on other commodities, like on rare metals and even copper and aluminium prices make as much of an impact as crude oil prices. So, I am not that much perturbed about crude oil volatility. At the end of the day, I do not think it is going to have a material impact on any of the consumers or the producing companies. What are you making of the entire market breadth right now given the kind of fall from the day high we have seen in Nifty yesterday? Nifty Bank and the broader markets continue to be resilient. Do you believe that a similar trading setup could continue for the near term?Dipan Mehta: I think so. Broadly markets are showing sideways movement and on the liquidity front, the supply is matching demand, and that is one thing which I can assess over there. Secondly, 9th July is a major event for the markets. It is just about two or three weeks away or so and that is the time when the pause which President Trump has announced, the 90-day pause gets over and then what happens after that is important. Is it going to be extended or is there going to be reimposition or are we going to have any trade deals? I think that will determine the sentiment from 9th July onwards. Apart from that, we are pretty much in a low news flow situation. The earnings are out of the way. We know that the monsoon is doing well. RBI’s interest rate has come through and we have seen also tax cuts have had an impact on tax collection. At the same time, it certainly has improved urban and rural consumption. So, by and large, the domestic fundamentals are gradually improving. Although I was disappointed with the direct tax collection on the corporate front, it shows that maybe earnings are slowing down but let us see. The biggest event in the market now still remains the 9th of July deadline on Trump tariffs.Live EventsYou Might Also Like:IT expected to perform well; 4 large & midcap stocks to bet on: Sunny Agrawal What is your take on not just Coforge but the overall midcap IT space because just yesterday, we have seen comments coming in from KPIT Tech and they were sounding cautious on the growth outlook ahead though for Coforge for now they are retaining some of their guidance that was given earlier. How do you see the midcap IT space flaring at this point in time and the demand environment?Dipan Mehta: The going is very tough for software services companies and we have seen that over the last 25 years there has hardly been any transition from one technology to another and to another, but the basic business remains the same – developing and maintaining applications for corporates. None of the Indian IT companies have gone on to become great platform players or great technology companies with products which delight the customer. So, I am very bearish on the entire software services industry. There could be a few companies within the midcap space like Persistent Systems or to an extent Coforge which are delivering superior growth rates because they are focusing on a particular vertical or because of their client concentration, but by and large, the entire industry is in a slow growth zone and investors need to get out of it just as they did out of FMCG. So, my view on software service companies is very negative. But there could be a handful of new generation software companies which may do well, platform companies like Sagility or Aurionpro, IZMO, and other such smaller companies. There is Newgen Tech also which has a slightly differentiated business model. There is Oracle, but there the earnings are quite volatile. We need to look for new business models within the software space. The existing companies are just not going to deliver great returns or value creation going forward. What does one do in today’s world when everything is getting indirectly or directly impacted by AI? We know that AI is tech enabled and yet in India we are struggling to find a single company which would be either giving AI as a service or as a solution. How ironic is it that AI is disrupting everything but in India very few AI companies are available for investors?Dipan Mehta: Yes, it is disappointing. As I said, Indian software services companies are just too focused on providing support services to Fortune 500 companies. They do not have the aspiration to build products or services which go directly to customer or really high-tech pathbreaking technologies. Why don’t we have an AI engine like DeepSeek? That is really surprising that nobody has thought of developing that. You Might Also Like:Indian market not sneezing at every global event any more; 5 sectors to bet on now: Shiv ChananiBut I think that is the pressure that is coming from their investors who are shortsighted and just want these companies to deliver steady growth. First it was high-teen growth, then it came to 10-12% and now the growth rates are in high-single digit and they are happy with it. If we look at Accenture’s CEO statement, he says that it was a great quarter for them and the quarter growth rate was just 7%. As an investor, how can you have a great quarter when there is a 7% growth rate and that is true across Indian IT services companies. You look at any of the management releases of the top companies – 2-3% quarter-on-quarter growth and the CEOs are patting themselves on the back. So, I am very disappointed with the sector as a whole. It has been a great wealth creator for me personally. But the way these companies are performing just now, there is no ray of hope that these companies can go back to 13-14% growth rate which is the minimum required threshold to get decent returns on your portfolio. We are looking out for new stories and there could be a few platform companies, a few edtech companies and a few travel tech companies like RateGain and then there is Zaggle Prepaid. These are all expensive but at least they are tech companies with a difference. So, what is not expensive and still growing and it is fairly priced or reasonably priced across the board, not just tech?Dipan Mehta: Oh, that is a difficult one to answer because there are not so many pockets of cheap valuation. As a sector, banks, NBFCs still offer the best risk-return profile but it is becoming more and more of a red ocean. It is getting cyclical as well, but we are looking at a nice up cycle in the NBFC space, so you could ride that. But by and large it is getting extremely difficult. You Might Also Like:Consensus not confident on India’s cyclical revival for next 2 years: Jigar MistryAt the same time, within sectors also there is a lot of disparity in growth rates and similar companies are showing different types of growth rates and on the whole also there are many positive investment trends, like investment in capital goods, within that there is renewable which is distribution as well as renewable equipment and then there is the banking and NBFCs, there are retail companies also. I thought a lot of specialty retail companies came with a good set of numbers. Cement is looking up. But on the whole, at this point there is nothing attractive which is available at reasonable valuations and still showing some growth rates. We are also searching for new ideas but let us see something or the other will definitely crop up.(You can now subscribe to our ETMarkets WhatsApp channel)
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