Helios India Rejects IT Sector to Bets on Domestic Consumption

Helios India remains skeptical about the long-term growth of the IT sector despite recent stock recoveries, citing structural disruption from artificial intelligence. The firm is heavily shifting capital into domestic consumption, capitalizing on millennial and Gen Z demographic shifts, rising aspirations, and the rapid growth of digital businesses.

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 strong conviction regarding these two distinct segments arises directly from our specialized Elimination Investment system, which systematically filters out industries and individual equities exhibiting unfavorable performance traits.

This strict 8-factor evaluation guarantees that any business successfully entering our investable universe originates from an industry backed by multi-year structural advantages and clear immunity to external disruptions.

Executive leadership, corporate oversight, and financial reporting standards are thoroughly verified. Stock prices must align within a highly practical and justifiable range before any capital deployment occurs.

Based on these specific parameters, the technology services industry failed our assessment because we determined that artificial intelligence will act as a major disruptive force, thereby compromising the long-term viability of the sector’s historical growth drivers.

This negative investment posture, which we originally established back in February 2025, faced numerous market trials, yet our core thesis allowed our team to maintain this specific position.

Currently, the discounted trading multiples across the technology space reflect a textbook valuation trap, particularly because forward-looking revenue expansion appears exceptionally minimal, rendering historical trading benchmarks highly deceptive to investors.

Conversely, the domestic consumer marketplace is experiencing strengthening tailwinds, especially since younger demographics now account for more than 70% of the active domestic labor force.

Supported by the successful nationwide deployment of the Jan Dhan-Aadhaar-Mobile infrastructure, modern digital commercial frameworks spanning financial technology, food delivery, electronic commerce, quick commerce, and direct-to-consumer models are positioned for compounding expansion.

This structural shift has simultaneously birthed an entirely new and highly dynamic category of public enterprises. Consequently, our long-term outlook for this segment remains overwhelmingly positive.

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) Evolving population characteristics and shifting societal habits will serve as the primary drivers of investment alpha. The nation is poised to unlock substantial economic value from its demographic profile, given that nearly two-thirds of the population is under 35 years of age.

Approximately 20% of the global youth population resides locally, giving the country the largest consolidated pool of young individuals worldwide. This specific demographic maintains superior literacy and higher material expectations than older generations.

In sharp contrast to historical consumer behaviors, modern citizens show no reluctance toward utilizing consumer credit to fund personal lifestyle experiences. A prominent manifestation of this credit appetite is seen in individuals securing personal financing simply to fund leisure travel.

This high comfort level with debt utilization is sustained by strong individual confidence regarding forward income trajectories, which consumers believe will comfortably cover debt obligations while leaving room for personal savings. This macroeconomic development represents a highly profitable foundation for forward domestic expansion.

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 previously outlined, consumption funded entirely from personal cash reserves can only expand in tandem with direct wage growth, whereas credit-financed spending allows expansion to outpace base earnings at an exponential rate.

Because of this economic reality, the non-banking financial companies selected for our portfolio remain predominantly focused on retail credit. Our holdings in private banking institutions similarly prioritize consumer banking operations.

Commercial banking institutions, specialized lenders, and broader financial institutions serve as crucial foundational facilitators of broader economic activity by providing the necessary monetary liquidity to accelerate domestic retail transactions.

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 risk of sounding redundant, this specific market environment is precisely where our proprietary screening methodology provides maximum utility, protecting our capital from frequent analytical errors during mid-cap and small-cap stock selection.

Typically, asset managers become overly attracted to discounted earnings multiples when looking at future expansion profiles. They frequently fail to investigate whether a valuation is depressed due to structural growth limitations, leadership deficiencies, poor corporate governance, or manipulation of financial records.

Our framework actively mitigates these systemic risks by completely removing vulnerable enterprises from consideration. Consequently, the businesses that survive our rigorous filtering mechanism possess strong underlying expansion traits and verified corporate health, while trading at multiples that accurately reflect their true trajectory.

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) International energy benchmarks are projected to retreat once shipping constraints ease through critical maritime corridors, which should restore the regular distribution of roughly 14 million barrels of daily supply. Therefore, global energy pricing presents minimal systemic risk.

Domestic price pressures will likely moderate as global energy costs self-correct and manufacturing supply chains, previously strained by high operational input costs, return to standard capacity. This variable appears manageable for the broader economy.

However, localized agricultural disruptions stemming from a historic El Nino weather pattern present a genuine risk to output, though current reservoir storage metrics outperforming the previous year may help insulate output through a single deficit cycle. Nevertheless, this remains the most significant variable.

Q) Given the ongoing geopolitical uncertainty and rising commodity prices, how are you positioning the portfolio to navigate the next 12 months?

A) Our investment team has maintained an optimistic stance regarding internal domestic consumption for an extended period, structuring our equity allocations to reflect this view. This consumer exposure extends past discretionary retail into fields like corporate hospitality, medical services, digital commerce platforms, passenger vehicles, and automotive components.

Our fund also maintains calculated exposure to select domestic exporters that command defensible market positions and distinct operational advantages over their international sector rivals.

Within internally driven market segments, alongside retail consumption and financial services, our strategy maintains an overweight allocation to domestic power infrastructure components providers, as rising consumer activity will inevitably trigger an exponential increase in absolute electrical grid demand.

Future Outlook

Looking ahead over the next 3 to 5 years, the integration of technology and credit infrastructure is expected to redefine India’s economic path. The transition toward credit-backed consumption among younger demographics will likely provide sustained momentum for consumer-facing financial institutions and new-age digital enterprises. Conversely, traditional IT service firms face an uphill battle to reinvent their delivery models as corporate clients globally look to automate legacy processes through advanced machine learning architectures, threatening the billable-hours model that sustained the sector for decades.

FAQs

Why is Helios India avoiding investments in the IT services sector?

Helios India views the traditional IT services sector as a value trap. The firm believes that rapid advancements in artificial intelligence will permanently disrupt legacy business models, severely limiting future expansion and threatening the long-term viability of the industry.

What is driving Helios India’s optimistic view on domestic consumption?

The optimism is driven by demographic shifts, with millennials and Gen Z making up over 70% of the domestic workforce. This large, aspirational population has a high comfort level with utilizing consumer credit to fund lifestyles and discretionary purchases.

How does the Elimination Investment philosophy protect the portfolio?

The philosophy filters out equities based on negative criteria through a strict 8-factor assessment. It eliminates companies showing poor corporate governance, weak accounting practices, or structural growth risks, leaving only high-quality stocks trading at reasonable valuations.

Which macroeconomic variable poses the biggest risk to the Indian market right now?

Helios India identifies the monsoon deficit caused by a record El Nino pattern as the most significant macroeconomic concern, though elevated reservoir levels from the prior year may help mitigate the immediate agricultural impact.

Why is Helios India overweight on power equipment suppliers?

The firm anticipates an exponential increase in power demand across the country as domestic consumption expands, making infrastructure and equipment providers vital beneficiaries of this industrial scaling.