The sharp rebound in information technology stocks over the past few weeks may not be enough to convince Marcellus Investment Managers to turn bullish on the sector.
Speaking to NDTV Profit, Pramod Gubbi, co-founder and founding partner at Marcellus Investment Managers, said the firm continues to prefer manufacturing-linked businesses over IT, arguing that artificial intelligence has made it difficult to take a long-term view on the sector despite more attractive valuations.
Gubbi said the Indian market is currently witnessing an improving earnings cycle, with corporate earnings appearing to have bottomed out after nearly two years of single-digit growth. However, macro risks—including elevated crude oil prices, rising global bond yields, geopolitical tensions and excess manufacturing capacity in China — continue to cloud the broader outlook.
While acknowledging that IT stocks have staged a strong recovery after an extended correction, Gubbi said the rapid pace of AI development has created structural uncertainty for the industry.
"There was a tactical angle because valuations had become cheaper," he said. "But the market still has no visibility on the long-term structural growth of IT services until AI reaches a more stable phase."
According to Gubbi, the speed of innovation across AI models makes it difficult for long-term investors to confidently assess how traditional IT services companies will evolve. As a result, Marcellus remains on the sidelines despite improved valuations.
Instead, the investment firm sees a stronger opportunity in India's manufacturing ecosystem.
Gubbi believes several structural tailwinds are beginning to converge, including a weaker rupee improving export competitiveness, the global China-plus-one sourcing strategy and the gradual implementation of India's free trade agreements.
These factors, he said, could benefit a broad set of manufacturing sectors over the next three years, including pharmaceuticals, chemicals, engineering goods, automobiles, auto ancillaries and textiles.
Beyond manufacturing, Gubbi also highlighted financials as one of the few pockets where valuations remain attractive, while healthcare continues to offer a long-term structural growth opportunity despite relatively expensive valuations.
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