Daily Voice: Bay Capital's Nikunj Doshi advises focusing on four secular themes for portfolio allocation

Nikunj Doshi is the Managing Partner, and CIO-PMS at Bay Capital

• USD, Gold will continue to remain strong as long as geopolitical tensions remain high
• Believe investors will remain underweight on IT services sector in near future
• PSU banks, private banks gap in valuations should narrow

Did our AI summary help?

Nikunj Doshi, Managing Partner and CIO-PMS at Bay Capital, has been focused on themes such as consumerism, financialization, digital-first companies, and IT outsourcing.

He believes these themes are secular in nature and intends to continue focusing on them.

He also believes that the current phase of the market presents opportunities to identify long-term investments. The US dollar and gold are considered the best hedges against global volatility and are likely to remain strong as long as geopolitical tensions stay elevated, he said in an interview with Moneycontrol.

Do you think AI-led disruption is a bigger risk than other factors, such as tariffs and geopolitical tensions?

AI is attracting lots of investments, and the developments are happening at a very fast speed. It is really difficult to gauge the impact of these developments on various companies. However, any new developments also open doors for various opportunities. We have to analyse the impact of these developments on each industry and company separately.

In case of tariffs and geopolitical tensions, one can estimate the impact on industries and companies, but in case of AI, it will take time to understand the same, hence we would agree to the view that AI-led disruption is difficult to predict.

Do you expect AI to severely impact jobs, consumption, and urban spending?

There are various developments in the history of humankind that most people predicted a doomsday scenario. When computers were introduced, everyone feared mass-scale job losses; similarly, during COVID times, everyone feared that the retail industry would suffer huge losses and would never bounce back.

However, humans are more intelligent than computers, and new opportunities will emerge. Going forward, I think job profiles will change, and people will have to reskill to take advantage of the new opportunities.

Considering AI-related concerns and earnings pressures, are you cautious about the IT services space for the remainder of the calendar year but bullish over the longer term?

One industry which is likely to see huge uncertainty and volatility in the near future is the IT services industry. For the IT services industry shape and size of opportunities will change, and they will have to modify their service offerings to take advantage of the new developments.

Do you see a continuation of the massive rotation out of the Indian IT services industry?

Any new development brings opportunities and threats together. However, in view of current bearish sentiments, due to geopolitical reasons, investors would see threats first and would act accordingly. I therefore believe investors will remain underweight on the IT services sector in the near future.

Are PSU banks relatively cheaper than private sector banks?

The banking sector has gone through the worst credit cost cycle, and most banks have cleaned up their balance sheets. PSU banks have a better geographical spread and are better placed to garner retail deposits. With the capex cycle picking up, their asset book will also see growth.

Traditionally, PSU banks have quoted at discounts to private banks due to asset quality, as of now, with improving asset quality, we believe the gap in valuations should narrow.

Which themes are currently attracting your attention for portfolio additions?

We have been focused on Consumerism, Financialization, Digital First Companies and i-Outsourcing themes. We believe these themes are secular in nature and will continue to focus on the same.

With AI-led disruptions, we would like to identify companies that are likely to use AI to improve productivity and efficiency. Manufacturing and customer-facing companies can use AI to improve efficiencies in production, marketing, and sourcing. Many digital-first companies have seen sharp corrections in valuations, and we are monitoring those closely to identify pockets of opportunity.

Do you see any triggers that could help the market break out of consolidation and move toward fresh highs?

Investors like growth and predictability, if we can see sustained momentum in earnings, the market will scale new highs. At present, AI-led disruptions and geopolitics are the two major factors clouding growth visibility.

We, therefore, believe that the current phase of the market provides opportunities for identifying long-term investments. USD and Gold are considered the best hedges against global volatility and will continue to remain strong as long as geopolitical tensions remain high.