India's mid-cap information technology firms will likely continue to do well because they have been leading digital transformation, according to Ayaz Motiwala of Nivalis Partners Ltd.
After 2000, large-cap IT firms grew larger and grew faster, Motiwala, senior fund manager at the firm, said in an interview with BQ Prime's Niraj Shah. There was almost a disappearance of mid-cap IT firms until the emergence of Mindtree Ltd. and HCL Technologies Ltd., he said.
Over the last three to five years, new companies such as L&T Infotech Ltd. and Happiest Minds Technologies Ltd. have emerged, while their larger peers have have mostly played catch-up, he said.
While companies like Infosys and TCS offer assurance of good earnings year after year, those like Tata Elxsi Ltd. or Larsen & Toubro Technology Services Ltd. have services-driven models, he said. Given the Indian strength on design, technology outsourcing and the production-linked incentive schemes on offer, enough labour pool is available to help these companies provide solutions to global majors, Motiwala said.
As the world moves towards electric vehicles, the software element in automobiles will rise even as there's a reduction of moving parts and hardware, he said. That underscores "major underlying structural opportunities" for mid-cap IT firms.
Motiwala said that while the chemicals sector is wobbly at present, its strength is its underlying business, which is far more robust.
He is impressed with the performance of fluorination companies, which have been able to protect their business models and have become the top players in their segments globally. Motiwala, however, said it will have to be examined whether these companies bought raw materials upfront, contributing to the sustainability of their businesses.
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