Why PPFAS Mutual Fund is having 8% allocation in IT stocks despite AI-led disruption

PPFAS Mutual Fund has an 8% allocation in the IT sector or IT stocks, Raunak Onkar told ETNow in an interview. Here is why the fund house is having this allocation:

Raunak Onkar said that all the active calls we make in the fund are bottom-up driven and IT services has been in the portfolio for a long period of time.

Raunak Onkar said that all the active calls we make in the fund are bottom-up driven and IT services has been in the portfolio for a long period of time.

In fact, some of these companies if you just zoom out a little bit, say, go 20 years’ time horizon of these companies, you will have seen so many technology adoptions that they have done and help their enterprise customers move from older technology to new technology and that trend should continue in my view, he said.

The current disruption that people see is that AI is going to take away the requirement of IT services, I do not think it is a binary or a very linear way of looking at things. Lot of things will change of course, pace of change also is much faster today, but at the same time there is an adoption that always continues to happen where customers will try things themselves, IT services will try things themselves and they will provide solutions which are required in the framework of regulations, framework of business that all these enterprise customers operate in.

A lot of these things although can seem black and white when you look at from one narrative, but on the other hand these are gradual changes which we have to observe and so far if you look at the business model changes, there is not material change that has happened immediately but over a period of time we will see that this business will evolve just like it has done in the past several cycles of technology, Raunak Onkar said.

If you look at what is happening in the power industry today, at one side there is demand that continuously keeps coming up. It can be in the form of existing GDP growth which leads to power demand, on the other hand we are seeing data centre adoption in India increasing, and on the other hand we are seeing EV adoption increasing which will be newer demands to the power infrastructure that we have.

I think that theme has a long runway to play out, but how will the renewable replace the base load of the fossil fuel remains to be seen. In the longer term, yes, we would want more of less polluting power available but at the same time we are resource constraint in our country from that point of view, so we are scaling the best way we can in our industry. So, runway seems to be good for the long run.

Raunak Onkar said that the fund house has added to some of the auto names, some of the IT services names. So, we are about 8% in IT, a bit of about 6% in auto industry. We have 20% exposure in private sector banks. We have holding company, Bajaj Holding. We have couple of PSUs, Coal India, Power Grid which make up about 6%, 7% of the portfolio. So, it is fairly diversified across different areas as we want it to be.

About 11% of the fund is still invested in global stocks which include Google, Meta, Amazon, and Microsoft which are again leaders in their category of businesses that they operate. So, it is well diversified. It has a bit of global diversification, and the cash allows us to wait for opportunities when we think the prices are right to buy.