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Time of India
4 days ago
- Business
- Time of India
Expect sideways, range-bound market in coming months: Dipan Mehta
"Considering these factors, I expect the market to move more sideways over the coming months. More importantly, it will become extremely selective—both across sectors and within sectors. Even within popular investment themes, only a few players are likely to perform well. So, I anticipate the next few weeks and months to be selective and range-bound," says Dipan Mehta, Director, Elixir Equities . Help us understand what you make of the markets. It's one day up, one day down, with very volatile moves in the benchmark indices. Yet, macros are looking strong, earnings so far have been decent, and we are just a couple of days away from ending this earnings season. We haven't seen any major disappointments so far. How do you believe the markets will move from these levels, and what will be the key drivers? Dipan Mehta: I beg to differ slightly. By and large, this earnings season has been a disappointment. If you aggregate all the numbers, profit growth is just 5.4%—the lowest in eight quarters. That is certainly a cause for concern, and the expected improvement in earnings is not materializing. The markets are in a very tight range because liquidity is preventing them from falling, while fundamentals do not justify a rally in stock prices given current valuations. Many large companies, as well as parts of the midcap universe, are experiencing a secular slowdown in earnings growth. Finance Value and Valuation Masterclass - Batch 4 By CA Himanshu Jain View Program Artificial Intelligence AI For Business Professionals Batch 2 By Ansh Mehra View Program Finance Value and Valuation Masterclass - Batch 3 By CA Himanshu Jain View Program Artificial Intelligence AI For Business Professionals By Vaibhav Sisinity View Program Finance Value and Valuation Masterclass - Batch 2 By CA Himanshu Jain View Program Finance Value and Valuation Masterclass Batch-1 By CA Himanshu Jain View Program Considering these factors, I expect the market to move more sideways over the coming months. More importantly, it will become extremely selective—both across sectors and within sectors. Even within popular investment themes, only a few players are likely to perform well. So, I anticipate the next few weeks and months to be selective and range-bound. Yesterday, we saw earnings from Honasa Consumer and Nykaa, both in the BPC (beauty and personal care) and discretionary spending segment. I don't know if you've had a chance to review the numbers, but both seem decent—Honasa even beat estimates, and Nykaa was in line. What do you make of this trend of continuous good quarters for these companies? Dipan Mehta: I would classify both as new-age FMCG companies. Traditional FMCG companies like HUL, ITC, and Nestle operate in mature categories where growth has largely plateaued. For investors still interested in FMCG, the BPC segment represents the real growth opportunity, as reflected in Nykaa's earnings. Live Events Honasa delivered numbers better than street expectations, but looking at year-on-year growth, I wouldn't view the company as particularly strong. Nykaa, however, posted a very impressive set of numbers. If they can execute their apparel and fashion business well and reduce losses there, investors are likely to reward the company, potentially driving stock prices higher. Nykaa's achievements are especially noteworthy given the competitive landscape. If they continue on this path, they could resume a strong wealth-creation trajectory. Another concern is valuation. What's your take on that? Dipan Mehta: That is indeed the challenge. Wherever there is growth, companies are being valued at extremely rich multiples. This makes it difficult because even if the company meets profit and growth projections, the high PE multiples are prone to compression over time. Finding good-quality stocks is challenging even after this mild correction. Broadly, in this earnings season, companies with consistent secular growth of 15–17% over three to five years are trading at 50–70x, sometimes even 100x price-to-earnings multiples, which is unsustainable for long-term returns. There are essentially two sets of companies: those growing above nominal GDP and those that are not. The number of companies failing to grow beyond nominal GDP is steadily increasing, which is a growing cause for concern.
Time of India
10-07-2025
- Business
- Time of India
Go for IT companies with unique business model; not largecap and me-too midcap IT stocks: Dipan Mehta
Dipan Mehta , Director, Elixir Equities , suggests that the IT sector's future lies in companies with unique business models. He highlights smallcap firms like Newgen and Aurionpro as potential winners. GIS companies and Genesys are also mentioned as interesting prospects. Persistent Systems and Coforge are noted for their aggressive strategies. Mehta believes largecap and me-too midcap IT stocks may not offer significant returns, going forward. We all know that this earning season will not come out with a good set of numbers. But if Accenture numbers are anything to go by, is there light at the end of the tunnel because it is not like this is going to be a dark tunnel for the rest of our life? Dipan Mehta: I think that what has happened is that basically there is a secular slowdown in the entire IT industry. The business model is such that they are going to be just about providing application, development, management, and the entire industry has moved to products and platforms. So, again, there is a structural issue in the Indian IT industry and I was quite hopeful that AI would be a trigger for higher growth but certainly that does not appear to be so. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Lana Green Is Retiring - Her Final Jewelry Pieces Are 80% Off Design Craft Weekly Read More Undo In fact, they may get disrupted because of artificial intelligence. And if you look at the 5-10-year track records, these companies at the end of the day have had high single-digit growth despite rupee depreciation. So, what is going to change it? I really do not know. The way the spend is happening in the tech industry, more and more is towards hardware, especially servers of the type that Nvidia makes or chips that Nvidia makes; more investment into data centres, storage capacity; and more investment into platforms and products. Software as a service is the new buzz word. It is a way to decrease cost and none of the traditional Indian IT companies are in that particular space. So, they are going to get disrupted and we are going to see further slowdown there. So, my view remains extremely negative. Sure, there could be rallies. A surprising quarter with 15-20% growth is possible, but the long-term trajectory is very slow. Even though you are largely negative when it comes to this sector, over the last couple of weeks, during sector churn, it has emerged positive for a couple of days. We have seen that the midcap end has done much better than the largecaps. If at all you had to play IT and if you are seeing any hope in this sector, do you believe it could come from the midcap end? Dipan Mehta: No. In fact, it has to come from companies which have a differentiated business model and which are more into products and platforms. Traditionally we had companies like Oracle and Ramco which were into products. There was Nucleus Software also but those have not done as well. Live Events You Might Also Like: FII selloff in IT stocks tops Rs 16,500 cr in Q1. Time to buy or bail? There's a new set of companies and they are really smallcap companies. Companies like Newgen, Aurionpro, merit a mention over here, usually disclosure, we and our clients may be invested in them, and then there are GIS companies which are also there, as is Genesys, which is quite interesting, at the right place at the right time. Beyond that, there could be a few IT companies like Persistent Systems, or a Coforge, which are aggressive and which are in the right space. They may do well, but at the end of the day, the largecap IT stocks and a whole host of midcap IT stocks, which are doing a me-too type of a business, are not going to give great returns going forward. You Might Also Like: Traditional IT in a spot; betting on 4 midcap platform companies: Dipan Mehta IT stocks hit decade-high 3.2% dividend yield as FIIs flee. Should you buy TCS, Infosys, Wipro before Q1 results?
Economic Times
27-06-2025
- Business
- Economic Times
Traditional IT in a spot; betting on 4 midcap platform companies: Dipan Mehta
Dipan Mehta, Director, Elixir Equities, says traditional Indian IT software services companies face disruption from global platform companies, specialized local players like Newgen Technologies, Aurionpro and Sagility, and Fortune 500 clients establishing global capability centers (GCCs) in India. These clients are investing heavily in innovation and leveraging India's human resources directly, impacting the traditional software services model. This shift is redirecting employment and innovation away from established Indian IT firms. ADVERTISEMENT Mehta further says companies like RateGain Technologies, Affle India, Zaggle Prepaid, IndiaMART InterMESH are the future. Where do you think Indian IT is headed given that certain global factors are not completely at rest and the kind of exposure IT has to the US? Dipan Mehta: Indian IT industry is in a bit of a spot. The growth rates have secularly come down. I have been tracking the industry for the last 25 years. The Y2K moment was about 25-26 years ago or so. These companies have shown phenomenal growth over the past several decades. But in the last three-four years, growth rates have come down to a trickle. They are as low as 3.5-4% profit growth for the top five-six companies. There are many reasons we can go into IT. But from an investor's perspective, when we are reviewing a sector or a company, we want a minimum 15% topline growth rate on a consistent basis over a three-five-year period. Only then can we get decent returns and have some sort of a wealth building process and that does not seem to be happening in any of the traditional software services companies with the exclusion of maybe a Persistent Systems or a Coforge. By and large, the largecap and midcap software service companies are in a secular slow growth mode and that is a big problem for investors in those companies. We are looking at AI becoming more centrestage. We are looking at more and more tech in everyone's life. Tech usage is going higher, but Indian IT companies are losing their importance. So, who will be the beneficiary in India and what should Indian investors look at because if AI and tech enablement is the basic theme, how can one maximize profit from IT? Dipan Mehta: Who are the winners is a billion dollar question. There is no doubt that India has a lot of tech talent and the industry is investing heavily into training for AI but there are very few in the listed space. But there is another trend that we should talk about. There was a time when a lot of the enterprises would develop their own systems, meaning either they make it themselves or get it made by Indian software services companies. That was application development and application maintenance and the IP for these applications was with the enterprise. Now, the entire thinking has changed and company after company wants to go on the cloud, wants to use a platform or a product and they want to reduce the cost of investing in technology. Also, there are so many technological disruptions taking place and they want to avoid those risks as well. ADVERTISEMENT So, the companies which focus on platforms and products will be the winners and right now in the Indian ecosystem, only two or three companies come to mind. One is Newgen Technologies, which is more of a platform product company; then there is Aurionpro, which is more of a platform product company, and then there are certain very specialised players like there are certain specialised players with focus on specific verticals which may do well. But it is very difficult to find good plays within the technology space listed in India. ADVERTISEMENT Given the fact that the sector is going into such an environment where we do not know what discretionary spending will be like, and what AI will do for the IT space, what should investors do and how should they read onto the valuation picture? Dipan Mehta: Valuations come into play when you actually see growth. If there is no growth, what is the point of taking any further study in the company in terms of where it is trading at, and what its valuations are? Sure, they can get cheap from time to time, we could have solid rallies in them, but at the end of the day, when you take a two, three, five, ten-year view, I am not sure these companies can deliver solid returns going forward. I think finally the Indian IT company has been disrupted by these product platform companies, global companies, and also they have been disrupted by their own Fortune 500 clients coming into India. The clients are the biggest source of employment. They are setting up their own global capability centres (GCCs). They are investing heavily in the front office, back office. Top level innovation teams are coming into India. So, globally India is still taking advantage of the massive amount of human resources available at a reasonable cost within India, it is just that it is not flowing through the software services companies. ADVERTISEMENT I think these companies are truly in a big spot and there is no scenario where they can go back to that double-digit, 12-13% type of growth rate. The unfortunate part is that – as I read from Accenture's management commentary – even a 7-8% growth year-on-year is a good quarter for them. So, if a 7-8% growth is a good quarter for the management of such a large company, what does it tell the investor? Investors are not going to be happy with 7-8% topline growth. There is a mismatch of expectations of the investor versus what the managements expect they can grow at. If I use the word new tech, there is this entire digital brigade, Policybazaar or for that matter Zomato or Swiggy, or even Paytm. Then, there are niche product companies like RateGain which essentially are in the business of SaaS or providing software services. Where would you pick your spots in this niche IT space? Which are some of the unique companies like Affle, which are small today but can really become giant in five years? Dipan Mehta: You have taken the discussion in the right direction and there are these whole host of B2C tech platforms and that is where a lot of Indian investors are focusing on. Right now, we are classifying them as consumption players or as fintech players or as edtech or for that matter travel tech. But these are the real technology companies in India that investors should focus on. And there are some great stories over there. I will give the usual disclosure that our views are biased. I think companies like RateGain Technologies, Affle India, Zaggle Prepaid, IndiaMART InterMESH are the future. Of course, there are the larger ones like Paytm and Swiggy and Zomato, but these large platform companies including Policybazaar are still bleeding in a way and eventually when they get into profitability we will see what returns they can give. But there is a whole host of midcap platform companies that I named which are generating solid profits and cash flow. They have their ups and downs, but at the end of the day, they will deliver very good returns over the next three to five years as they scale up the business model and take advantage of operating leverage. ADVERTISEMENT
Time of India
27-06-2025
- Business
- Time of India
Traditional IT in a spot; betting on 4 midcap platform companies: Dipan Mehta
Dipan Mehta , Director, Elixir Equities , says traditional Indian IT software services companies face disruption from global platform companies, specialized local players like Newgen Technologies , Aurionpro and Sagility, and Fortune 500 clients establishing global capability centers (GCCs) in India. These clients are investing heavily in innovation and leveraging India's human resources directly, impacting the traditional software services model. This shift is redirecting employment and innovation away from established Indian IT firms. Mehta further says companies like RateGain Technologies, Affle India, Zaggle Prepaid, IndiaMART InterMESH are the future. Where do you think Indian IT is headed given that certain global factors are not completely at rest and the kind of exposure IT has to the US? Dipan Mehta: Indian IT industry is in a bit of a spot. The growth rates have secularly come down. I have been tracking the industry for the last 25 years. The Y2K moment was about 25-26 years ago or so. These companies have shown phenomenal growth over the past several decades. But in the last three-four years, growth rates have come down to a trickle. They are as low as 3.5-4% profit growth for the top five-six companies. There are many reasons we can go into IT. But from an investor's perspective, when we are reviewing a sector or a company, we want a minimum 15% topline growth rate on a consistent basis over a three-five-year period. Only then can we get decent returns and have some sort of a wealth building process and that does not seem to be happening in any of the traditional software services companies with the exclusion of maybe a Persistent Systems or a Coforge. By and large, the largecap and midcap software service companies are in a secular slow growth mode and that is a big problem for investors in those companies. We are looking at AI becoming more centrestage. We are looking at more and more tech in everyone's life. Tech usage is going higher, but Indian IT companies are losing their importance. So, who will be the beneficiary in India and what should Indian investors look at because if AI and tech enablement is the basic theme, how can one maximize profit from IT? Dipan Mehta: Who are the winners is a billion dollar question. There is no doubt that India has a lot of tech talent and the industry is investing heavily into training for AI but there are very few in the listed space. Live Events You Might Also Like: Bearish on software services stocks; biggest event for market is still July tariff deadline: Dipan Mehta But there is another trend that we should talk about. There was a time when a lot of the enterprises would develop their own systems, meaning either they make it themselves or get it made by Indian software services companies. That was application development and application maintenance and the IP for these applications was with the enterprise. Now, the entire thinking has changed and company after company wants to go on the cloud, wants to use a platform or a product and they want to reduce the cost of investing in technology. Also, there are so many technological disruptions taking place and they want to avoid those risks as well. So, the companies which focus on platforms and products will be the winners and right now in the Indian ecosystem, only two or three companies come to mind. One is Newgen Technologies, which is more of a platform product company; then there is Aurionpro, which is more of a platform product company, and then there are certain very specialised players like Sagility. So there are certain specialised players with focus on specific verticals which may do well. But it is very difficult to find good plays within the technology space listed in India. Given the fact that the sector is going into such an environment where we do not know what discretionary spending will be like, and what AI will do for the IT space, what should investors do and how should they read onto the valuation picture? Dipan Mehta : Valuations come into play when you actually see growth. If there is no growth, what is the point of taking any further study in the company in terms of where it is trading at, and what its valuations are? Sure, they can get cheap from time to time, we could have solid rallies in them, but at the end of the day, when you take a two, three, five, ten-year view, I am not sure these companies can deliver solid returns going forward. You Might Also Like: Looking for narrative stocks? These four themes look promising: Anand Radhakrishnan I think finally the Indian IT company has been disrupted by these product platform companies , global companies, and also they have been disrupted by their own Fortune 500 clients coming into India. The clients are the biggest source of employment. They are setting up their own global capability centres (GCCs). They are investing heavily in the front office, back office. Top level innovation teams are coming into India. So, globally India is still taking advantage of the massive amount of human resources available at a reasonable cost within India, it is just that it is not flowing through the software services companies. I think these companies are truly in a big spot and there is no scenario where they can go back to that double-digit, 12-13% type of growth rate. The unfortunate part is that – as I read from Accenture's management commentary – even a 7-8% growth year-on-year is a good quarter for them. So, if a 7-8% growth is a good quarter for the management of such a large company, what does it tell the investor? Investors are not going to be happy with 7-8% topline growth. There is a mismatch of expectations of the investor versus what the managements expect they can grow at. If I use the word new tech, there is this entire digital brigade, Policybazaar or for that matter Zomato or Swiggy, or even Paytm. Then, there are niche product companies like RateGain which essentially are in the business of SaaS or providing software services. Where would you pick your spots in this niche IT space? Which are some of the unique companies like Affle, which are small today but can really become giant in five years? Dipan Mehta: You have taken the discussion in the right direction and there are these whole host of B2C tech platforms and that is where a lot of Indian investors are focusing on. Right now, we are classifying them as consumption players or as fintech players or as edtech or for that matter travel tech. But these are the real technology companies in India that investors should focus on. And there are some great stories over there. I will give the usual disclosure that our views are biased. I think companies like RateGain Technologies, Affle India, Zaggle Prepaid, IndiaMART InterMESH are the future. Of course, there are the larger ones like Paytm and Swiggy and Zomato, but these large platform companies including Policybazaar are still bleeding in a way and eventually when they get into profitability we will see what returns they can give. But there is a whole host of midcap platform companies that I named which are generating solid profits and cash flow. They have their ups and downs, but at the end of the day, they will deliver very good returns over the next three to five years as they scale up the business model and take advantage of operating leverage. ETMarkets WhatsApp channel )
Economic Times
25-06-2025
- Business
- Economic Times
Bearish on software services stocks; biggest event for market is still July tariff deadline: Dipan Mehta
Dipan Mehta, Director, Elixir Equities, says the software services industry faces challenges due to a lack of innovation and transition to new technologies. While some mid-cap companies may experience growth, the industry is generally in a slow-growth phase. Investors should consider new-generation software and platform companies with differentiated business models for better returns, as traditional firms may not deliver significant value. ADVERTISEMENT What is your take on some of these crude sensitive sectors given that crude prices have cooled off from elevated levels? Whenever we see a spike, all reports keep flowing in with a target over $100 per barrel mark. But the price movement is showing a reversal right now. Which sectors offer valuation comfort now? Dipan Mehta: No, crude has not had much of an impact. It is rallying because of the Iran-Israel skirmishes and the subsequent correction has not had a material impact on any of the stock price movements. Investors do not feel that that is a major threat or a major benefit for any particular sector and over time, the importance of crude, its impact on inflation, and its impact on material prices in India is reducing. The focus is elsewhere on other commodities, like on rare metals and even copper and aluminium prices make as much of an impact as crude oil prices. So, I am not that much perturbed about crude oil volatility. At the end of the day, I do not think it is going to have a material impact on any of the consumers or the producing companies. What are you making of the entire market breadth right now given the kind of fall from the day high we have seen in Nifty yesterday? Nifty Bank and the broader markets continue to be resilient. Do you believe that a similar trading setup could continue for the near term? Dipan Mehta: I think so. Broadly markets are showing sideways movement and on the liquidity front, the supply is matching demand, and that is one thing which I can assess over there. Secondly, 9th July is a major event for the markets. It is just about two or three weeks away or so and that is the time when the pause which President Trump has announced, the 90-day pause gets over and then what happens after that is important. Is it going to be extended or is there going to be reimposition or are we going to have any trade deals? I think that will determine the sentiment from 9th July onwards. Apart from that, we are pretty much in a low news flow situation. The earnings are out of the way. We know that the monsoon is doing well. RBI's interest rate has come through and we have seen also tax cuts have had an impact on tax collection. At the same time, it certainly has improved urban and rural consumption. So, by and large, the domestic fundamentals are gradually improving. Although I was disappointed with the direct tax collection on the corporate front, it shows that maybe earnings are slowing down but let us see. The biggest event in the market now still remains the 9th of July deadline on Trump tariffs. What is your take on not just Coforge but the overall midcap IT space because just yesterday, we have seen comments coming in from KPIT Tech and they were sounding cautious on the growth outlook ahead though for Coforge for now they are retaining some of their guidance that was given earlier. How do you see the midcap IT space flaring at this point in time and the demand environment? Dipan Mehta: The going is very tough for software services companies and we have seen that over the last 25 years there has hardly been any transition from one technology to another and to another, but the basic business remains the same – developing and maintaining applications for corporates. None of the Indian IT companies have gone on to become great platform players or great technology companies with products which delight the customer. So, I am very bearish on the entire software services industry. ADVERTISEMENT There could be a few companies within the midcap space like Persistent Systems or to an extent Coforge which are delivering superior growth rates because they are focusing on a particular vertical or because of their client concentration, but by and large, the entire industry is in a slow growth zone and investors need to get out of it just as they did out of FMCG. So, my view on software service companies is very negative. But there could be a handful of new generation software companies which may do well, platform companies like Sagility or Aurionpro, IZMO, and other such smaller companies. There is Newgen Tech also which has a slightly differentiated business model. There is Oracle, but there the earnings are quite volatile. We need to look for new business models within the software space. The existing companies are just not going to deliver great returns or value creation going forward. ADVERTISEMENT What does one do in today's world when everything is getting indirectly or directly impacted by AI? We know that AI is tech enabled and yet in India we are struggling to find a single company which would be either giving AI as a service or as a solution. How ironic is it that AI is disrupting everything but in India very few AI companies are available for investors? Dipan Mehta: Yes, it is disappointing. As I said, Indian software services companies are just too focused on providing support services to Fortune 500 companies. They do not have the aspiration to build products or services which go directly to customer or really high-tech pathbreaking technologies. Why don't we have an AI engine like DeepSeek? That is really surprising that nobody has thought of developing that. But I think that is the pressure that is coming from their investors who are shortsighted and just want these companies to deliver steady growth. First it was high-teen growth, then it came to 10-12% and now the growth rates are in high-single digit and they are happy with it. ADVERTISEMENT If we look at Accenture's CEO statement, he says that it was a great quarter for them and the quarter growth rate was just 7%. As an investor, how can you have a great quarter when there is a 7% growth rate and that is true across Indian IT services companies. You look at any of the management releases of the top companies – 2-3% quarter-on-quarter growth and the CEOs are patting themselves on the back. So, I am very disappointed with the sector as a whole. It has been a great wealth creator for me personally. But the way these companies are performing just now, there is no ray of hope that these companies can go back to 13-14% growth rate which is the minimum required threshold to get decent returns on your portfolio. We are looking out for new stories and there could be a few platform companies, a few edtech companies and a few travel tech companies like RateGain and then there is Zaggle Prepaid. These are all expensive but at least they are tech companies with a difference. ADVERTISEMENT So, what is not expensive and still growing and it is fairly priced or reasonably priced across the board, not just tech? Dipan Mehta: Oh, that is a difficult one to answer because there are not so many pockets of cheap valuation. As a sector, banks, NBFCs still offer the best risk-return profile but it is becoming more and more of a red ocean. It is getting cyclical as well, but we are looking at a nice up cycle in the NBFC space, so you could ride that. But by and large it is getting extremely difficult. At the same time, within sectors also there is a lot of disparity in growth rates and similar companies are showing different types of growth rates and on the whole also there are many positive investment trends, like investment in capital goods, within that there is renewable which is distribution as well as renewable equipment and then there is the banking and NBFCs, there are retail companies also. I thought a lot of specialty retail companies came with a good set of numbers. Cement is looking up. But on the whole, at this point there is nothing attractive which is available at reasonable valuations and still showing some growth rates. We are also searching for new ideas but let us see something or the other will definitely crop up. (You can now subscribe to our ETMarkets WhatsApp channel)
