Pick the right stocks and stay invested: Vikas Khemani on navigating IT sector

India’s IT sector may continue to face headwinds in the near term due to global economic uncertainty and transitional disruptions, but the long-term outlook remains resilient, according to Vikas Khemani, Founder of Carnelian Asset Advisors. In an interaction with ET Now, Khemani shared a nuanced view of the sector, acknowledging near-term pain but reiterating confidence in India’s structural strength in global tech services.

Short-term Pain, Long-term Promise

Addressing concerns about continued pressure on IT stocks, Khemani said, “The short term might be challenging, but again, if you see structurally over the last 5, 10, 15, or 20 years, whenever there has been a technology transition, Indian companies have benefited more than lost.”

Whether it was the Y2K boom, ERP wave, digital transformation, or cloud migration, Indian IT companies have consistently adapted and expanded their capabilities.

Three Structural Growth Drivers

Khemani outlined three long-term tailwinds that continue to drive growth in the sector:
1. Constant technology disruption
2. Our market leadership in the space
3. The aging population elsewhere, which will ensure more and more technology adoption.

He explained that India’s position as a service implementation powerhouse ensures continued relevance.

“Microsoft can go and sell Azure, but the lift-and-shift implementation has to be done by the Indian IT services company,” he said.

AI Integration: Cost Pressure or Volume Booster?

With the rise of AI-driven service delivery models, questions around pricing and profitability are gaining prominence. Khemani acknowledged that “Using AI, IT companies will deliver services differently… their cost structure might go down, to that extent price deflation might happen.”

However, he argued that this trend is not new, and it has always happened. Every time IT companies have reduced prices, they have gained more volume.

A Call for Selective Investing

While Khemani remains broadly positive on the sector, he cautioned that not all companies will emerge stronger from this technological transition.

“Some companies will suffer from this transition, some companies will benefit… Those are the segments and companies one has to identify and invest in,” he said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)