Key Takeaways
- The sell-off in the IT sector seems exaggerated in the short term; AI disruption will unfold gradually, not overnight
- Large IT companies with strong cash flows can focus on AI acquisitions and data center investments
- Indian households’ equity allocation is only 6-7%, leaving huge structural space for capital market growth
- Asset managers and asset managers are the favorite players in the capital market
- GLP-1 patent expiration could catalyze a revaluation of the pharma sector in FY27, if valuations are supportive
The IT sell-off: fear has surpassed reality
“There’s just too much fear and anxiety about what AI will do to IT,” says Raheja. “Some of it is certainly real, but a lot of it will actually happen over a period of time – not tomorrow or the day after.” He believes the market has punished the sector as if AI-driven displacement is imminent, when in reality it will take years for the structural transition to be fully realized.Meanwhile, India’s top IT companies continue to generate strong free cash flows and trade at attractive dividend and cash flow yields. The more relevant question, Raheja argued, is whether these companies will continue to return capital to shareholders through buybacks and dividends — or whether they will deploy cash more aggressively toward AI capabilities. The first signs indicate that the latter is becoming increasingly likely.
“I’d be surprised if I don’t see a lot of them starting to talk about what they’re going to do in AI. This could also provide great acquisition opportunities for some of these companies.”
Raheja pointed to the fact that India’s largest IT company has already announced plans to set up data centers, signaling a meaningful strategic pivot point. He expects more companies will follow suit and use their war chests to make acquisitions in the AI space — a move that could reframe the industry’s narrative from “at risk from AI” to “active participant in AI.” The global sell-off of software and IT names, he added, has simultaneously led to acquisition targets at reasonable prices.
His short-term conclusion: The sector has sold off significantly enough to warrant a tactical recovery. However, in the longer term, he acknowledged that growth rates will remain under scrutiny unless these companies successfully develop their business models.
Capital markets: noise in the short term, conviction in the long term
On the capital markets front, Raheja was unequivocal on the long-term structural situation, even as he acknowledged short-term regulatory headwinds. The government’s expressed discomfort with the speculative exuberance in the futures and options segment has translated into a series of tightening measures: curbs on lending, restrictions on margin financing and tightened supervision. Volumes in certain segments of the market are already moderating. “You will see things settle down,” Raheja acknowledged. But he was quick to put the structural picture into context: Indian households currently invest only 6 to 7 percent of their assets in equities – a strikingly low figure compared to emerging markets such as China, South Korea and Taiwan. The gap alone represents years of potential inflows as financial awareness grows and the culture of equality deepens.
Equally important, he says, is the psychological shift that has taken place among Indian retail investors following the post-corona stock market boom. Now that we have witnessed first-hand the compounding power of equities, it is unlikely that a generation of new investors will abandon the asset class simply because F&O speculation is being reined in. The stock habit, he argued, has been formed.
“We are very optimistic about the capital market. We believe it is a structural story – and that structural story will continue,” says Raheja.
Where to invest: asset managers over stock markets, for now
When Raheja was asked how investors should position themselves within the capital markets theme, she offered a nuanced view. His preference is for asset managers and asset managers – firms that benefit from continued growth in financial assets under management, regardless of short-term volatility in trading volumes.
He was more measured at the fairs. While he acknowledged that exchanges function as natural monopolies within their respective segments – one dominant in equities and equity derivatives, the other in currencies and commodities – he noted that an overhang exists. The upcoming IPO of India’s largest exchange is expected to reduce the scarcity premium that existing stock exchanges have historically offered. Once that event passes and valuations are recalibrated, stock markets will become a more attractive entry point, he said.
Pharma and the GLP-1 opportunity
On the pharmaceutical sector, Raheja expressed cautious optimism around the GLP-1 theme – the class of weight loss and diabetes drugs whose patent expirations are expected to open up significant generic manufacturing opportunities in FY27. The sector has underperformed over the past year, meaning valuations of some names have become more reasonable. If the GLP-1 play unfolds as expected and Indian manufacturers are in a position to capitalize, companies in this sector could generate strong cash flows and force a revaluation. His caveat, characteristically disciplined: this opportunity is only worth taking if the valuations are “well aligned.”
Across all three themes (IT, capital markets and pharma), Raheja’s outlook reflects a mix of short-term tactical awareness and long-term structural conviction. According to him, markets have misjudged IT fears and underestimated the depth of India’s equity growth story. For patient investors, both can offer meaningful opportunities.
(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)
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