Selective investing the way forward as AI, valuations reshape market trends: Dipan Mehta

IT Sector: Lingering Uncertainty Amid AI Disruption

When asked whether it is still wise to stay away from IT stocks, Mehta did not mince words.

“Yes, absolutely. I think that there is still a lot of confusion around AI disruption and especially largecap IT stocks seem to be most vulnerable because of the scale. The base effect is a negative and clearly their demand is driven by multi-year multi-billion dollar contracts, so that is becoming more and more scarce for them and I suspect they are facing pricing pressure as well. But midcap IT companies, they may be able to manage the AI disruption far better. We like the numbers which came through from Persistent Systems and Tata Elxsi, both smaller companies with greater client concentration, which was earlier a risk factor but now may be a bit of a benefit for these companies. So, we need to be a bit selective when it comes to software services companies and especially largecap IT services. I do not know how they are going to manage this particular phase in the industry.”

His comments underline a structural shift in the sector, where scale—once a strength—may now pose challenges in adapting quickly to AI-led disruption.

Live Events

Trent: Strong Momentum, But Valuation Concerns Persist
On the retail front, the conversation turned to Trent, a stock that has seen extended underperformance in the past but is now showing signs of revival. However, Mehta remains cautious.

“No, I think that even their pre-quarter release was quite positive and maybe it is going into a slightly higher growth rate, but still valuations remain quite expensive and my sense is that the company’s return should be in line with the earnings growth. So, around 15% to 20% or thereabout is what can be expected. But look, this entire war and the effect of artificial intelligence on the software services companies, that is going to have an impact on disposable and discretionary spending. So, while the March quarter may be fine, we may see some chinks coming in the June quarter. “So, on the entire consumption theme also one should be a bit cautious or at least reduce your expectations. So, I think that while the momentum is good in Trent, of course, the bonus issue certainly has helped lift the sentiment, but then considering the risk return profile, considering its expensive valuation, I would not want to put more investment into Trent. Having said that, it is a company in which we are invested in, so I would keep the same stance: remain invested, lower your expectations, expect returns in line with what the kind of earnings growth are, but I would not want to buy it at these levels considering the kind of valuations it is trading at,” he added.

The takeaway: existing investors may hold, but fresh entries at current valuations could be risky.

Cooling Stocks: A Seasonal Opportunity
Shifting gears to summer-driven demand, Mehta pointed to a potential opportunity in cooling solutions, driven by rising temperatures.

“It is going to be a very hot summer. So, while you are perspiring inside, you may take relief in the fact that if you have got a play on some of the air conditioning or the air cooling companies, then that may just make managing summer a little bit more palatable. One company comes to mind, usual disclosures of course, is Symphony, which is India’s largest air cooling company and it has been having a torrid time for the last few quarters or so, and clearly because of changing weather patterns and poor monsoon, the performance has been pretty stagnant for the last several quarters…”

While the sector has faced headwinds, seasonal demand could offer a near-term tailwind.

The Broader Picture
Across sectors, Mehta’s message is consistent: be selective, manage expectations, and stay mindful of macro shifts—from AI disruption to changing consumption patterns. In a market that is increasingly nuanced, broad-based optimism may give way to stock-specific strategies.