Old vs New: Why Khemka prefers Indian IT services over new age tech

Prashant Khemka, Founder - White Oak Capital

The Indian IT Services companies are a fairly stable business model, as compared to the new age tech companies that dominate NASDAQ and other markets, Prashant Khemka, founder, White Oak Capital Management, told Moneycontrol in an exclusive interview on June 23.

Watch the Prashant Khemka interview with Moneycontrol here

The Indian IT services have a strong business model that has stood strong despite several blows, be it the Y2K crisis; the 2008 global financial crisis which impacted their biggest vertical; the BSFI segment in the US; or the more recent rise in suspicion that cloud technology would put them out of business.

He dismissed the notion that disruption in technology will impact their long-term potential. He made a case for the entire IT services sector by stating that “Investors must evaluate threats instead of writing off a sector, because if we were to do that, the Indian IT services sector would have been written of at least 4-5 times over the past two decades”.

Khemka acknowledged that Generative AI may damage certain pockets of the IT businesses, but it will also help many companies thrive.

Also Read: Prashant Khemka bullish on banking, consumption, IT but bearish on real estate

Bullish view

Although the tech sector has been weak over the past 12- 18 months, and there is nervousness about a US recession, Khemka believes the sector would be a good addition to investment portfolios. He noted that the sector has generated massive wealth over the past 20 years and IT companies spread across several market capitalisations are a good pick for investors.

The Nifty IT Index has delivered a 109-percent return over the past five years. Over the past year, it has been trading flat amidst fears of an impending US recession.

Khemka, however, is bullish despite the negative market sentiment over expectations of a slowdown in the US. “We don’t disagree with the expectations of the slowdown in the US and some demand slowdown. But the value of any company is the present value of future cash flows into perpetuity,” said Khemka.

He said based on discounted cash flows, the valuation of these companies looked attractive. “Some of these companies will see a weakness in revenue and weakened cash flows in the next two years, but the valuations are very attractive for select companies,” he said.

He highlighted that the valuations for the sector may not be strong, but certain companies are still poised for long-term growth.