Hardwood timber Ashi Anand , CIO, IME-branded strategies, Valcreate Investment Managers , says “some of the deal wins are longer tenure in nature so they will take time to ramp up. We are not seeing the revenue impact of this in the current year primarily because of that reason but as we start going into FY25, one gets some amount of tailwind of these large deal wins that we are seeing companies across the board kind of win. Plus hopefully, there will be some kind of economic normalisation as we go into next year.”
Whether it is TCS or Infosys or HCL Tech – the numbers so far are not looking impressive at all. IT companies are talking about business going down first before it recovers but the stocks have not fallen apart. With this kind of commentary, in a normal environment these stocks could have gone on the butcher block.
If you are looking at the IT numbers, it is really not all that bad. There is a clear kind of pressure in terms of guidance for the current year. We have seen HCL Tech, Infosys cut guidance for FY24 but on the other hand, we have seen very strong deal wins across the board for TCS, Infosys and HCL Tech. I think this has been a very strong quarter in terms of deal wins. This lays the foundation for a potential strong bounce back in FY25.
Some of the deal wins are longer tenure in nature so they will take time to ramp up. We are not seeing the revenue impact of this in the current year primarily because of that reason but as we start going into FY25, one gets some amount of tailwind of these large deal wins that we are seeing companies across the board kind of win. Plus hopefully, there will be some kind of economic normalisation as we go into next year. So to some extent, the strength that we are seeing in IT is a fact that the current pain for this year is something which is known but the potential bounce back going into next year is starting to get discounted partly.
Unlock Leadership Excellence with a Range of CXO Courses Offering College Course Website IIM Lucknow IIML Chief Marketing Officer Programme Visit IIM Kozhikode IIMK Chief Product Officer Programme Visit Indian School of Business ISB Chief Technology Officer Visit The other core element when it comes to IT is that we are seeing companies being able to hold on and improve margins across the board. Attrition which was a concern a few quarters back is clearly coming down. I do not think it is all bad for IT. Yes, there is some amount of short term pain but we are seeing some kind of decent hopes in the longer term and that is why these stocks are not falling.
Have you added anything of late in your digital fund? Have you made any changes because a lot of new interesting digital based companies have gone public? There are a lot of new companies like Zaggle, RateGain , which have gone public that are in the SaaS business?
Without really getting into specific portfolio action that we may or may not have taken over the last month or so, we are clearly evaluating some of these companies. SaaS, according to us, is a very interesting digital platform. One spends a lot of money building out digital technology which is the software that one provides as a service.
Subsequently, a tremendous operating leverage can play out here. The one concern that we have experienced while evaluating some of these SaaS players is where we are in terms of our current research. The one thing we make clear on our digital platform fund is we want to ensure a very clear right to win. In some of these SaaS platforms, they are either addressing a market size which is not necessarily large enough or the right to win has not yet been clearly established for a particular niche. While we are evaluating these companies, we may be taking certain stakes in them but this is not something we are making very large investments into.
Some of the digital businesses which you have invested in – Zomato, Nykaa and Paytm – when you bought them, nobody expected a 70% comeback in a Policybazaar or Zomato or a 40-50% comeback in Paytm. Would you say that these stocks are now looking richly priced and you need to take some chips off the table.
Ashi Anand: We are very confident about space for the coming decade. We were lucky in terms of timing. We really caught the bottom very well. And yes, there has been a very sharp bounce back from there. But if you look at the underlying dynamics and the underlying value creation that is happening towards digital platforms, growth is likely to sustain at very high levels over the coming decade.
If you look at the penetration levels, India has 5 crore people ordering food online. There are over 50 crore in China. There are 18 crore online shoppers in India. There are over 70 crore in China. Now, a lot of internet penetration, access to cheap data, all of that has emerged over the last five to seven years. A UPI was only introduced in 2016. So we are still in very early stages of digital adoption. We are still in early stages in terms of the shift from traditional forms of commerce towards digital platforms.
Something which is possibly not very well appreciated is how the next generation comes into the primary consumption class. This generation has been digitally native in terms of their form of consumption. People in our age group were used to traditional forms of commerce and have had to migrate towards digital platforms. The consumer of tomorrow has been born and brought up with digital platforms. So growth is going to sustain at very high levels. Since February, we have been very strongly stating that profitability of these platforms over the longer term is much superior than what people are expecting.
If you take a combination of high growth rates sustaining, profits starting to kind of emerge and actually be at higher levels than what people are expecting. We expect to see digital platforms in India outperform overall markets over the coming decade in a very similar way to what you saw the Nasdaq do over the overall markets in the US between 2010 to 2020. Therefore our call is not to go in and out of the sector. We see this as a very attractive buy and hold and a long-term compounding story.
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