In the big picture, IT is not a great sector any more: Samir Arora

Economic Times

10-07-2025

Samir Arora, Founder, Helios Capital, points out that the IT and large consumer sectors are currently experiencing slow earnings growth, needing to increase from 3-5% to 8-10% to boost the market. He anticipates that large banks will recover to 14-15% earnings after NIM pressure eases. Arora suggests a realistic expectation of 10-15% annual equity returns, aligning with recent market performance.
Arora is pessimistic about the IT sector's future. He cites US uncertainty and AI's increasing role in replacing human jobs as key concerns. Arora highlights job losses at firms like Microsoft and Meta. He argues AI's primary function is to automate tasks previously done by people. Arora believes this trend poses a significant challenge to India's IT industry.
Where do you see the markets headed?
Samir Arora: The markets are okay. I do not like this other end of the market, guys who say this is 25 years of India and the Amrit Kaal of India. They over-dramatize and oversell. But imagine continuing the GDP growth at 6-7% and that you are helped by flows and after every two-three days, there is talk of getting ready for tariff response and all that. If we get away with tariffs lower than China, lower than Bangladesh, lower than Sri Lanka, lower than Japan, EU and get 10-15%, then that will help on the other side. Plus, the fiscal deficit is in control. The interest rate, inflation, and liquidity numbers are good.
But nothing is so attractive that you should make 20-25%. That's why I say okay. Okay means you will get decent return. You do not have to always make much more than the underlying earnings growth. It is not that you can get PE rating, but you can continue with the earnings growth reflecting in stock prices.
For markets now to move higher, what could be the trigger? Markets have got much more than what we thought they would get in April. Liquidity is back, rates have come down, monsoon has been good. Tariffs, so far it appears there would be sensible application…
Samir Arora: India would be relatively better off.
Yes. Yet from April, markets are just not going anywhere. If not April, at least May, June. So, if the news is favourable, why is it so?
Samir Arora: But it is okay in the sense that the market will be up 4-5% year to date. I consider year to date as calendar year to date. So, that is why I am imagining or expecting only 10-12% per annum for one or two years or at least one year; then the earnings have to grow much more than they are.
Currently, there are two big chunks of the market which are not growing in earnings. One is the IT sector and one is the large consumer sector. They have to grow from 3-5% to 8-10%, then the whole thing can get a boost and maybe the financial sector, particularly large banks and all whose earnings in this one quarter and maybe second quarter will be 8-10%, they have to go back to the 14-15% which will happen after a few quarters, after the NIM pressure goes away.These 2-3 big chunks of the market are not growing at 15%. Normally they used to, but they may not go back to 15%, but they can go between 10% and 15% and that is fair to expect and not unreasonable. But that is enough for you to be fully interested in equities. If in the end, you get more, great; but we do not have to start by imagining or selling or overselling that you are going to make 20% per annum, but you can make 10-15% per annum. The last six months in the end are basically going along with that expectation only, although the first one or two months were bad, but overall it is up 5-6-7%, It will be all okay in six-seven months.
The last time we spoke to you, you said markets are looking okay and banks are looking good. Are banks really looking good?
Samir Arora: I am not saying banks are looking good. I am saying for the overall market to do better, these three pools have to grow at higher rates than they are currently. But we continue with the banks we have. Of course, we have been pained a lot by our number one holding for the last three-four years or maybe four-five years. But last year, it was okay. Even year to date, it is okay. So, it is okay. Not every stock is going to give me 20-25% but I do not think that the market is going to be like that. So, we hope a few stocks will give that and as long as they outperform by 1% or 2-3% also, it is okay.
Help us with your take on the IT space as well because the same quarter last year, you were quite bullish on the overall space but of late, you are not expecting much of the IT space and you have sold off there.
Samir Arora: I do not know about last year but this year from Feb basically we have only one IT stock…
Any hopes from the earning season, are you still looking for opportunities?
Samir Arora: No, we do not have hope. Of course, there can be hope in the sense that positioning is very light and nobody is bullish. I do not play technical, but go for the big picture. If instead of 3%, you want to grow 4%, it's great for a technical reaction. But the bottom line is that A) the US uncertainty has not gone away; and B) Is it not enough to see every day, day after day, things that you thought were being done by human beings are now being done by AI and basically new tech or new technology? Even drivers are losing their jobs. Companies like Microsoft are firing employees. You can see Meta firing employees and on the other hand paying hundreds of million dollars for some employees. So, the whole sector is in flux and if you really look at it philosophically and conceptually, that biggest attack is on India because what is the role of AI in its purest sense? Two things. One is to do things which human beings could not do as well, things like weather forecasting or some drug discovery or something that is great. The other one is to replace human beings. There is no third reason for doing AI. It is to replace human beings. Now you can say, and this is what these companies say and the bulls say, that if you see the last three or four rounds, whether it was in 2000 or then the Cloud and then it was this and then it was that, people discovered new things to do and therefore in the end, jobs were not lost, businesses continued to grow. Here the only thing is that one of the core objectives is to replace human beings. It is not a side issue that as part of doing something else, you replace the human effort. No, that is the main effort. The second one, for a smaller part, is to do things which humans could not do. That part will continue. But the other argument is that in the beginning companies will need to get advice or work done on moving faster to cloud, on what data set to use, what AI to use. If you saw the multiplex companies from '21, people knew that it has been disrupted by OTT, but every day some analysts would come and say that this month Superman is coming and this month some Pushpa 2 is releasing therefore this month is very good. We have to see the big picture. Philosophically, it has been disrupted. Now, that does not mean next quarter, I would not have one share here or there, but big picture IT is not any great sector according to me.