what to buy: Prefer software cos like HCL Tech, TCS to play digital theme: Dipan Mehta

What is your outlook on the agri inflation scenario that is currently underway and how could that potentially impact the input costs and margins in the consumption story?
Inflation is a big concern for all companies, especially consumer-facing companies — be it automobiles, appliances or even FMCG stocks. But Indian companies have a great deal of experience in dealing with it.

Secondly, when the demand situation is strong, it becomes easier to pass on cost hikes which is what we will be seeing all around as far as consumption related companies are concerned be it an FMCG or other sectors. Lastly, during the entire pandemic and lockdown, a lot of companies had a strong look at their costs and a considerable amount of savings got generated because of work from home and other similar innovative solutions like working from cloud and other technologies. A lot of those cost savings are going to be permanent in nature. That is one lever which a lot of companies will use to manage their margins.

Last but not the least, I think with demand coming back, volumes are going up. Automatically, there is a positive operating leverage and that also helps manage the margin. I am not too concerned about rising inflation affecting consumption related companies — be it FMCG, auto, appliances or any other sector for that matter.

The underlying theme is tech, AI, digitisation and companies that adapt well. Which stories in the listed space do you think merit a mention for having adapted to this theme and looking promising for the long haul?
For us, the best way to play this entire AI and cloud and digital theme is through the Indian software companies which are benefiting tremendously in terms of higher project inflows and greater utilisation and more and more inroads in offshoring. That is the one theme which is going to play out exceedingly well. In the last two-three quarters, right through the pandemic, the software companies have been rock solid when it comes to their earnings and the commentary has been extremely positive.

Changes are taking place in the software arena. The way companies are managing their technologies — global MNCs as well as Fortune 500 companies — the best way to play that trend would be through Indian software companies. Apart from that, there are a few so-called digital listed businesses in India but they are very expensive. These are the likes of IndiaMART InterMESH or for or mobile solution companies like Tanala and Route Mobile.

Info Edge also comes to mind but these are very richly valued because there are very few digital businesses which Indians can buy and that is the reason why they are so expensive. But the best way to play this entire digitalisation, cloud, AI, IOT and internet of things, would be through Indian software companies like

which focussing a lot on platforms and products and even , which is an absolute giant when it comes to providing software services. There are many choices for investors vis-a-vis software companies which provide digital assistance to global companies.

Why did gas stocks fall on Wednesday? Should these be bought on dips?
The entire gasification of the economy and application of gas in industrial, home cooking as well as transportation is steadily picking up and the gas infrastructure is gradually being built by the gas transmission or the gas distribution companies. This is a long-term theme which investors can play, given that there could be decent compounding of earnings over there.

But from time to time, corrections may take place in the sector and we are witnessing that just now. The sentiment in gas stocks may have weakened a bit on account of rising LNG prices. China has now suddenly turned into a big importer of LNG as they are also trying to move away from coal and that has led to a sharp rise in LNG prices globally and that may certainly impact Indian companies as well as they start to pass on cost increases. This will definitely have an effect on the demand and use of alternative fuel stock as well. These are some variables in play at this point of time. But from a long-term investment perspective, gas companies, especially city gas distribution companies, still have a long way to go in terms of capturing market share and building their infrastructure.

These are nice cash businesses not as capital intensive because a lot of the pipe laying work has already been completed and it is now mainly about giving the last mile gas connectivity. So there are many positives over there and we are quite positive on the entire gas distribution.