Why new-age technology and IT sector stocks are buy on every dip

MUMBAI: The share of technology companies’ profits in the overall profit pool of Nifty500 companies may grow by nearly 10 times over the next 10 years, making it a sector that could create the largest wealth, Amit Jeswani, founder and chief investment officer at Stallion Asset Management, told ETMarkets.com in an interaction.

Edited excerpts:

Last year, you had said banks are not the place to be in right now. Has that opinion changed now?

Banks have underperformed since then and our NBFC picks have done okay. If you see technology stocks have done very well for us, pharma has done decently, consumers has done very, very well and these are the only four sectors that we invest in but tech is where I think the biggest money will be made over the next 5-10 years.

Despite the current PE levels?
There is no earnings at the moment. You do not have to bother too much about the E but in my humble opinion it is not that easy if you think about it. For technology companies, advertisement cost is capex as they are trying to create a habit in people and that habit is a very long lasting habit. These customers keep using a product and every time they use your product you keep making some margin. So you do not have to buy all of them but you have to track all of them (technology companies).

By tech you mean the new-age and not the old IT?
We have both. In IT services also, you can look at the largecap players and midcap players. IT services is a $3 trillion opportunity. So for the next five years, I think they are no-brainers. Tech is one place when your return on capital is 50-70% and there is no capital involved yet your growth is 15-20%. Even at current valuations, you should do very decently even in the largecap tech and in midcap tech stocks. On any dip in these stocks you need to buy, especially, the ones that cross the $1 billion revenue mark.

The entire Nifty500 profit pool is Rs 6.5 lakh crore in India. If you look at all global markets like China and the US, tech is 40-45% of the total profit pool. In India tech’s profit pool is Rs 82,000 crore. My understanding is that the profit pool will move to Rs 17 lakh crore at a 12% CAGR over the next 10 years and tech will grow the fastest.

Banks will become more fintech. Banks also are more on the tech side, so that is where the largest wealth creation will happen.