Nilesh Shetty turns cautious on India, but is loading up on IT stocks at COVID-level calculations – News Air Insight

Nilesh Shetty, Portfolio Manager at Quantum Advisors, was among the bulls on India heading into this year. He is not anymore — at least not yet. The Middle East conflict has prompted him to pull back client allocations to a cautious, wait-and-watch stance. But within that defensiveness lies one conviction trade: Indian IT services, which he believes the market has badly mispriced on the back of AI hype.

Why a former India bull is now telling clients to hold back

Until recently, Shetty had been urging clients to go overweight on India and equities broadly. The macro setup was, in his words, nearly ideal: GST-driven consumption recovery, low inflation, and low interest rates all converging. India had also enjoyed a decade of benign crude prices — a structural tailwind that cushioned the current account deficit and kept the rupee and interest rate cycle stable.

The war changed that calculus. India’s exposure to the Middle East runs deep — crude oil, fertilisers, and remittances are all in play. If the conflict prolongs, the low-inflation, low-rate environment that has underpinned India’s growth could reverse quickly. Shetty also flagged early signs of stress: gas supply disruptions to industries are already being reported. “That is a big worry for India,” he said plainly.

His base case is not a prolonged bear market — he is clear that once the conflict resolves, the India growth story snaps back. But he is not willing to bet on timing, and he is wary that the current selloff may have further to run before that happens.

The contrarian IT bet: AI hype has created a rare buying window

The most striking call from Shetty is his active accumulation of Indian IT services stocks — a sector that has been punished by investor fears that artificial intelligence will hollow out the traditional services model. Shetty thinks that fear is badly overstated.

His argument: enterprises do not rip out functioning IT infrastructure overnight. There are maintenance cycles, upgrade cycles, and compliance constraints that make a wholesale switch to AI-native software implausible in the near term. The companies best positioned to help large corporates integrate AI into their existing systems are not the AI platforms themselves — they are the Indian IT services firms with decades of enterprise relationships. “The pool of opportunity will expand, not shrink,” he said.

The valuation case reinforces the thesis. IT stocks are trading at multiples that, in Shetty’s assessment, match their COVID-era lows — with dividend yields of 4–5% on businesses generating substantial free cash flow. For a long-term allocator, that combination of pessimistic pricing and structural opportunity is hard to ignore.

What he’s buying, what he won’t touch

Consumer staples: 70–80x earnings despite years of underperformance

Consumer staples deserve special mention. Shetty has had zero allocation to the sector for 12 years — and he is not changing that. Even after a prolonged period of underperformance that has nominally compressed valuations, stocks in the space still trade at 70 to 80 times earnings. For a valuation-disciplined manager, that remains firmly in “avoid” territory. Capital goods and industrials, while cheaper than before, have also not corrected enough to clear his bar.

The Quantum Advisors playbook right now, in short: stay patient on broad India, build selectively in IT and financials where value has appeared, and wait for geopolitical clarity before pressing the accelerator again.