ETMarkets PMS Talk | Dinshaw Irani of Helios India stays away from IT, doubles down on domestic consumption amid AI disruption

Despite the recent recovery in IT stocks, Helios India remains unconvinced about the sector's long-term growth prospects, arguing that artificial intelligence could fundamentally disrupt the traditional IT services business model.

Instead, the portfolio management firm continues to double down on India's domestic consumption story, driven by favourable demographic trends, rising aspirations among millennials and Gen Z, and the rapid expansion of new-age businesses.

In an interaction with ETMarkets, Dinshaw Irani, MD of Helios India, explains why the firm sees IT as a potential value trap, where it is finding opportunities in consumption-led themes, and how it is positioning its portfolio amid evolving macro and geopolitical challenges. Edited Excerpts –

Q) The portfolio continues to maintain an overweight stance on domestic consumption and zero exposure to IT services. What gives you the confidence to stay committed to this positioning despite changing market dynamics?

A) Our conviction in both these sectors (negative - IT and positive - consumption) comes from our Elimination Investment philosophy which simply rejects sectors and stocks on bad factors.

The 8-factor check ensures that the stock that ultimately makes it through comes from sector/industry which has multi-year structural tailwinds & any disruption.

The management, corporate governance and accounting quality are ensured. The valuations fall in the reasonable zone.

On these factors, IT was rejected as we were of the view that AI will be a very big disruptor for this sector thus the longevity of the sector tailwinds was threatened.

The negative stance we took way back in Feb.'25, was tested many times but our conviction helped us stand our ground.

Today, the relatively cheap valuations of the sector remind us of a classic value trap as the future growth for this industry looks very bleak, so the past valuations are bound to mislead.

In case of consumption, with the millennials and GenZ now contributing to over 70% of the work pool, the tailwinds are getting longer and stronger.

With the JAM (Jandhan, Aadhar & Mobile data) trinity that India has executed flawlessly, the new age consumption plays (fintech, foodtech, e-comm, Q-comm, D2C, etc) are bound to prosper and grow exponentially.

This has also given rise to a new and more exciting breed of companies and stocks. Thus, we continue to be bullish in this space.

Q) Your PMS is built around three long-term structural themes — private sector dominance, demographic/lifestyle changes, and factor cost advantage. Which of these themes do you believe could create the biggest alpha over the next 3-5 years?

A) The demographic and lifestyle changes will be the biggest alpha generator. India is set to reap the demographic dividend as almost two-thirds of our population is under the age of 35.

A fifth of the global youth live in our country which happens to be the largest youth pool. This young population is much more educated and aspirational than previous generations.

Unlike previous generations, they are not averse to borrowing for the sake of consumption. A classic example of their borrowing appetite is that they even borrow money to go for vacations.

This comfort for borrowing for the sake of consumption stems from their confidence in future earnings that will not only service the debt but also allow them to save. All this is panning out to be a very lucrative proposition for India's future growth.

Q) The portfolio has a significant allocation towards NBFCs and private sector banks. Are you seeing early signs of a new credit cycle emerging in India?

A) As mentioned earlier, consumption from savings can only grow as much as the consumer earnings grow but if it was through financing/borrowing, the pace of growth becomes exponential to the consumer earnings growth.

Thus, the NBFCs that we have in our portfolio are mostly consumer-facing. The private sector banks too are consumer focused banks.

Banks, NBFCs and other financial service firms are the enabler of consumption by providing the fuel for boosting this consumption.

Q) Small- and mid-cap stocks have seen sharp volatility this year. How are you balancing growth opportunities with valuation risks in this segment?

A) At the cost of repetition, this is where our Elimination Investment philosophy stands out as it helps us avoid the obvious mistakes while investing in mid and small caps.

Normally a money manager gets carried away by cheap valuations keeping in mind the prospects of future growth. What he forgets to question is if the valuation is cheap due to questions on the longevity of this growth, the quality of management, bad corporate governance or questionable accounting practices.

Our philosophy helps us avoid these mistakes by eliminating such stocks. Thus, the stocks that finally make it to the investable pool after the 8-factor elimination process are inherently growth oriented with quality ensured but at the value that is reasonable for the growth.

Q) You highlighted concerns around inflation, crude oil prices, and monsoon uncertainty. Which macro variable do you think markets are currently underestimating the most?

A) Crude prices are expected to fall off once the Strait of Hormuz opens up as that will ease out the supply of almost 14 million barrels per day. So crude does not seem to be that much of a concern.

Inflation will ease once crude prices come off and supply chains disrupted due to high energy prices come back to normal. So that too does not seem to be a problem.

However, the monsoon deficit due to a record El Nino definitely is concerning but given the elevated reservoir levels as compared to past year, maybe we can withstand a year of deficit monsoon. However, this seems to be the biggest concern.

Q) Given the ongoing geopolitical uncertainty and rising commodity prices, how are you positioning the portfolio to navigate the next 12 months?
A) We have been bullish on the domestic consumption story for a while and have oriented our portfolio towards that. The consumption is not only limited to discretionary spends but also to industries like hospitality, healthcare, new age consumption plays, autos, and ancillaries, etc.

We also have a healthy mix of export earners who command a niche as compared to other global competitors.

In the domestic facing sectors, apart from consumption and BFSI, we are also overweight the power equipment suppliers as we believe with increased consumption, the demand for power is expected to rise exponentially.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)