Enterprise spending on technology is set to rise structurally, but the beneficiaries of that spend may look very different from the past decade, according to Ashish Gupta, Chief Investment Officer at Axis Mutual Fund.
Gupta said companies across sectors will be compelled to increase investments in IT and AI tools. While automation is lowering the per-unit cost of delivering IT services, the broader technological shift means aggregate enterprise spending is likely to expand.
The challenge, he noted, lies in identifying the next set of winners. Historically, investors relied on sector strengths — such as exposure to BFSI or telecom — to forecast growth for IT firms. But with AI reshaping business models, past playbooks may not hold. “We are entering uncharted territory,” Gupta suggested, adding that scale alone may no longer determine who captures a larger share of spending.
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Cloudy Valuations
Gupta said near-term earnings risks appear limited. Recent quarterly results have largely met expectations, and services export data remains strong. The debate, he argued, is less about immediate revenue impact and more about the terminal value investors assign to these businesses.
Given the disruption risk from AI and the lack of clarity on long-term growth trajectories, valuations are not yet compelling despite corrections. He does not expect a broad-based rally, calling the current environment unlikely to be a “one-way market.”
Macro Divergence Emerging
On the broader economy, Gupta highlighted visible divergence. The auto sector continues to perform well, though growth is moderating in passenger vehicles while two-wheelers and commercial vehicles show strength. Cement volumes are growing at around 10%, but steel demand has softened. Retail growth remains under pressure.
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He sees power as a continuing theme, especially companies linked to rising electricity demand and transmission capex.
Real estate, however, may remain vulnerable, particularly if concerns around IT sector growth persist, given the second-order impact on housing demand.
BFSI and Autos Favoured
Gupta expects a rebound in the hospital sector after six months of pricing and insurance-related pressures. Valuations in several names have become more reasonable compared to prior peaks.
In financials, particularly lenders, he sees strong earnings momentum. Credit growth has accelerated to 13–14%, while credit costs for many NBFCs and mid-sized banks are likely to ease. Earnings growth in BFSI could reach 16–17% this year.
Autos and BFSI, he said, remain preferred sectors, though leadership within autos may shift. In a differentiated macro environment, Gupta expects bottom-up stock selection and thematic plays — rather than broad sector rallies — to drive returns.
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