The AI impact: Revenue deflation, not profit destruction
While markets have been spooked by the potential impact of AI on traditional IT services companies like Infosys and TCS, Anand presents a contrarian view that challenges the bearish consensus.
The fund manager acknowledges that AI will indeed have a deflationary impact on revenues as projects can be executed with substantially lower manpower due to increased efficiency.
“What AI basically is going to allow for is for IT services companies to be able to execute the same size of projects with potentially substantially lower manpower because your manpower is that much more efficient,” Anand explained in an interview with ET Now.
However, the critical insight is that while cost savings will likely be passed on to clients, the absolute level of profitability should remain stable. The revenue hit from deflation is expected to be offset by a considerable increase in margins, leaving net profitability largely unaffected in the short to medium term.
Key takeaways on IT services
- Deflationary revenue impact is real but will be compensated by margin expansion
- Net profitability unlikely to see significant impact in short to medium term
- Long-term outlook remains strong as enterprise IT spending continues to grow
- Current valuations are attractive post-correction
- AI solves manpower constraints that previously limited growth for large IT firms
Platform companies: The decade’s opportunity despite recent volatility
Anand maintains an aggressively bullish stance on platform companies, describing them as “the investment opportunity in the Indian markets over the coming decade.” However, recent price movements have been driven by company-specific events rather than fundamental sector weakness.
PolicyBazaar (PB Fintech): Down 30-35% on distribution concerns
The insurance aggregator has faced pressure from two factors: concerns about potential cuts in distribution commissions for insurance companies, and uncertainty around capital allocation following the announcement of a QIP for a potential overseas acquisition. The lack of clarity on what asset is being acquired has created near-term investor caution.
Paytm: EBITDA hit from incentive removal
The fintech platform took a hit after development incentives for sound boxes deployed in smaller towns were removed. While this represents a meaningful EBITDA impact, management has outlined measures including user fee increases to recoup a significant portion of the loss. Anand views this as a short-term issue that doesn’t change the compelling longer-term monetization opportunity from Paytm’s large user base, particularly in lending and cross-sell opportunities.
Quick commerce: Divergent paths for Zepto and Swiggy
Zepto (Eternal) achieved profitability breakthrough: The company broke even on quick commerce on an adjusted EBITDA basis this quarter, well ahead of market expectations.
Swiggy faced increased losses: The company reported losses of approximately ₹900 crores in adjusted EBITDA for quick commerce in the same quarter.
These divergent results highlight different strategic approaches and execution capabilities, with markets closely monitoring how each company maintains market share amid intensifying competition in what remains one of the biggest value creation opportunities in the platform economy.
Jewellery sector: The standout consumer play
In a consumer environment where most segments struggle with weak demand, the jewellery sector stands out as a remarkable exception. Anand highlights several factors driving the sector’s outperformance.Titan’s recent results showcased 40% revenue growth in a segment where other leading consumer names struggle to achieve even 10-12% growth. This performance comes despite—or perhaps because of—strong movements in underlying gold and silver prices, which have supported rather than destroyed demand for jewellery.
Three pillars supporting jewellery growth
Strong underlying demand holding up even as other consumer segments weaken
Rising per capita income driving discretionary spending shift as India crosses $2,000 per capita threshold
Unorganized to organized migration remains a multi-year structural theme with significant runway
The fund manager characterizes jewellery as a direct play on discretionary consumption in India, positioned to benefit from the natural evolution of spending patterns as incomes rise and aspirations grow. While gold price volatility may create short-term fluctuations, the longer-term structural growth story remains intact.
Investment philosophy: Separate digital platforms from IT services
Anand emphasizes the importance of distinguishing between two distinct segments within the broader tech universe. Digital platforms in India—beneficiaries of increasing consumer growth and migration from traditional businesses—will be clear AI beneficiaries through improved operations and better data analysis capabilities.
Traditional IT services, while facing different dynamics, shouldn’t be written off. The narrative of AI rendering these companies redundant misses the bigger picture: as the world becomes increasingly digital and tech-focused, enterprise spending on information technology will only expand. AI doesn’t eliminate the need for large IT firms creating enterprise software for the world’s largest businesses—it makes them more efficient at doing so.
The market’s recent panic selling in IT services appears overdone, platform companies remain the structural growth story of the decade despite near-term noise, and jewellery offers a rare bright spot in an otherwise challenged consumer landscape. Current valuations in IT services post-correction present attractive entry points for patient investors willing to look through short-term AI anxiety.