Instead, he believes stock-specific opportunities exist in select IT names, while sectors such as energy, defence, healthcare and capital market plays currently offer stronger growth visibility.
Cheap Valuations Alone Are Not EnoughChadha noted that several frontline IT companies are trading at significantly lower earnings multiples than in previous years. However, he cautioned that valuation comfort alone cannot be the basis for investment decisions.”You need to be a little selective here. Obviously, there is some value in terms of the earnings multiple. You are getting TCS at, let us say, 13-14 times; Infosys at, let us say, 15 times earnings; HCL also is roughly about 14-15 times. But if the constant currency growth remains flat or negative, then even a 14-15 times valuation does not make too much sense.”
He highlighted the ongoing artificial intelligence revolution and the massive capital expenditure commitments being made by global technology giants.”There is this entire AI narrative. Look at the amount of capex the big five-six are doing. Google is raising $80 billion, which Mr Uday Kotak pointed out. So, there is a lot of capex going there.”India’s AI Opportunity Lies in Application LayerBreaking down the AI ecosystem into different segments, Chadha said India currently has a stronger role to play in the application and implementation layer rather than foundational AI models.
“You have to divide the AI thing into three. One is enterprise AI, where you have OpenAI and Anthropic, etc., where we do not have any presence. Second is LLM, where we have Sarvam, which was showcased at the AI Summit. Third is using some LLM for creating our own applications, which is where India would come in handy.”
“I do not think we are completely out of AI, but between the three metrics, if you put it together, we are probably there in one.”
Midcap IT Better Positioned Than LargecapsAccording to Chadha, mid-sized IT firms may be better placed to adapt to changing technology trends and monetise AI-led opportunities.
“My sense is that midcap IT has a larger ability to pivot and participate in this as and when the implementation phase picks up and the monetisation phase picks up.”
He expressed a relatively constructive view on companies such as KPIT Technologies, Persistent Systems and Coforge, although he acknowledged that valuations remain elevated in some cases.
“I am a little more constructive on, let us say, the likes of KPIT, Persistent and Coforge, although the valuations there are a little high.”
Among large-cap names, Chadha said HCL Technologies remains one of the few companies he prefers because of its diversified business mix.
“We have a very small exposure to HCL Tech because it is not just IT services; it is a nice mix of ER&D, software and IT services. So, you have got to be a little selective here and just do not go by the PE multiple.”
Buybacks Could Become a Key CatalystWhile acknowledging that the IT sector’s transformation may take several quarters, Chadha believes an important trigger could emerge from changes in buyback taxation.
“One important development could be the change in taxation on buybacks.”
Drawing a comparison with Apple, he explained how aggressive buyback programmes can significantly improve earnings per share and shareholder returns.
“If you see Apple, there have probably been almost five or six buybacks in the last six-seven years. They have actually eliminated some 30-40% of the outstanding stock.”
He added that many Indian IT companies are sitting on large cash reserves and may increasingly opt for buybacks over dividends.
“With IT companies sitting on the kind of cash they have and with the SEBI paper making buybacks back at 12.5% at an investor level, dividends may make way for buybacks again.”
According to Chadha, the combination of renewed buyback activity and modest improvement in constant currency growth could support a near-term recovery in the sector.
“Once the buybacks start and provided we have a little bit better CC growth quarter-on-quarter, this could give a bit of a tactical bounce across the sector.”
KPIT, Persistent and Coforge Among Preferred BetsChadha revealed that his portfolio has started accumulating select technology names, particularly those demonstrating an ability to adapt and invest for future growth.
“Companies taking bold bets, companies which have a niche and companies which are showing the ability to pivot—you may start entering now.”
He specifically highlighted KPIT Technologies, which has faced headwinds related to client contracts and management changes.
“Personally, we have started adding KPIT, which is more auto-tech. The street reacted negatively because two of their largest client contracts are about to expire, and then you had the unfortunate event of Mr Pandit passing away, who was the founder and MD of KPIT.”
“The multiple is now 20 times, the margin profile is good, there is a lot of margin of safety and that can be added.”
Energy Remains a High-Conviction Theme
Outside technology, Chadha remains particularly bullish on India’s power and energy infrastructure build-out.
“We have been adding energy names very aggressively.”
He pointed to the massive transmission investment cycle expected over the coming years.
“The transmission capex over the next four-five years could be between ₹7 lakh crore and ₹9 lakh crore. The peak power demand has already crossed 270 gigawatts.”
He said companies across transformers, conductors and power equipment continue to report robust demand visibility.
“You speak to any guys in transformers, gensets, conductors—you speak to, for example, GE Vernova or Hitachi; you speak to, let us say, Apar, which is into conductors—you will see the order books are full and they are getting more orders.”
Renewables and Defence Also AttractiveAmong renewable energy plays, Chadha disclosed a recent addition to his portfolio. “We have just added Waaree Energy. That is a full-stack play from, let us say, polysilicon right up to the module.”
He also sees growing opportunities in defence, particularly as exports accelerate and indigenous content rises.
“You will see more export orders in BrahMos, Pinaka, anti-drone systems and loitering ammunition. I think these are four segments you should closely track.”
“BrahMos also, if you see, 10 years back the Indian content was 15%; today it is about 60-70%.”
Betting on Capital Markets and HealthcareChadha said his portfolio has also increased exposure to capital market-linked businesses and healthcare.
“We have added some capital market plays like Groww to the portfolio because we believe that as and when markets recover, this is a high-beta play.”
He also mentioned adding exposure to asset management companies and healthcare names.
“We have also added some AMC names like Birla Asset Management, which is relatively cheaper and funds are showing signs of turnaround.”
“Defence, energy, some of the capital market space and healthcare are what we are adding more of in this market.”
Cautious on Aviation Despite Recent CorrectionOn the aviation sector, Chadha remains cautious despite the correction in airline stocks. “We are right now neutral. I agree there has been a good correction, but there is a lot of uncertainty around war.”
He cited factors such as fuel prices, flight cancellations and currency volatility as key risks.
“You are not in control of flight cancellations. You are not in control of fuel prices. So, too many variables are at play.”
Rural and Blue-Collar Consumption a Better ThemeInstead of aviation, Chadha prefers consumer discretionary segments tied to improving blue-collar incomes and rural demand.
“The market is more worried that inflation and El Niño may impact sales, especially rural sales. I think two-wheelers and two-wheeler ancillaries look good.”
He believes India is witnessing an unusual divergence between white-collar and blue-collar income trends.
“We are in a situation where you are seeing a white-collar slowdown and a blue-collar boom—a very different scenario.”
“The lower-ticket, mid-end discretionary segment, in my view, should do better. So, you can play that through some of the lower consumer durable names and some of the auto names.”
Key TakeawaysWhile attractive valuations have brought IT stocks back into focus, Chadha feels investors should prioritise companies that are adapting to the AI era rather than buying the sector as a whole. At the same time, he continues to favour long-term structural themes such as energy infrastructure, defence manufacturing, healthcare and capital market plays, where earnings visibility remains stronger and growth drivers are more immediate.
