Nilesh Shah, MD and CEO of Envision Capital, is maintaining a cautious stance on the IT sector despite current market volatility. According to reports from The Economic Times, Shah expressed uncertainty about the validity of current IT business models amid AI's disruptive potential. "We still do not know if the current business models are valid or if they will have to be reoriented," Shah stated in a conversation with ET Now. The IT sector has experienced significant valuation compression, with mid-tier companies seeing valuations fall from 35x to around 24-25x, while top-tier names have declined from 23-25x to 15-16x. Shah's skepticism extends beyond valuation concerns to fundamental business model questions, questioning whether AI displacement could significantly impact revenue streams.
Shah's skepticism extends beyond valuation concerns to fundamental business model questions. As reported by The Economic Times, he questioned whether AI displacement could significantly impact revenue streams. "The big question is not whether IT can grow from low single digits to high single digits. The question is whether the $100 of existing revenue becomes $80, or even lower, once AI displacement really kicks in," Shah explained. He emphasized that the market is interrogating relevance rather than just margin improvements, whether companies can re-engineer themselves into something meaningful in an AI-first world. Shah noted that India will be a strong adopter, not a foundational builder, of AI technology, with the focus on companies using AI to expand markets, deepen customer relationships, and squeeze more productivity out of existing operations.
Despite avoiding IT, Shah has identified six sectors where he sees growth potential and is actively deploying capital. According to The Economic Times, these sectors include digital platforms, D2C consumer brands, energy security, defence & indigenisation, drug discovery & healthcare, and discretionary consumption. The selection reflects a strategy focused on sectors positioned to benefit from technological and economic trends, with particular emphasis on sectors that align with India's evolving industrial landscape. Shah pointed to these six pockets where he has been actively building positions through the recent correction.
Shah's approach reflects a measured view of the current market correction and its implications for long-term investment. As reported by The Economic Times, he acknowledged that the correction was real and created genuine opportunities, with supportive macro and earnings backdrops. However, he emphasized that not every beaten-down sector deserves fresh capital simply because it has fallen, noting that "the price is lower for a reason that has not fully played out yet." His strategy focuses on sectors where he sees clearer paths to growth and relevance in the evolving economic landscape, with the broader message that the correction was real, the opportunity it created was real, and the macro and earnings backdrops have cooperated to create meaningful investment opportunities.
