Bullish on IT services, there is no competition for India: Vikas Khemani

Bullish on IT services, there is no competition for India: Vikas Khemani


In chemicals, the shift from China to India has begun to happen or has got accelerated and that can be extended to many more sectors, says the Founder, Carnelian Capital.

How are you looking at the Indian IT sector? Would it be a positive view across the board or are you being very selective?
A very big shift has happened. Post Covid crisis, across the world, organisations need to spend significantly on digital transformation, infrastructure update and that has created a significant spurt in IT demand.

This demand is global, this is not a particular company, particular sector or a particular country. It is global across sectors and this is a very robust environment. From a supply side perspective, the great path for India is that there is no competition; only Indian IT companies can provide IT services both in digital transformation and infrastructure upgrade for the related IT services.

We will create the demand environment over the next three to five years for most IT services. Of course, there will be some sort of a shift from the traditional server system to the new digital side. The overall pie is going to get fairly large. Across the board, IT services will do very well but obviously the larger ones will capture the larger part because they are a lot more prepared for the digital capability perspective. They are more prepared from the point of access to customer perspective. But in general, when that pie goes up, every company benefits.

We are in general bullish for IT services and we think it is here to stay because existing demand supply dynamics. On the supply side, it is only Indian. You cannot count more than 10-15 companies which have any kind of capability to cater to this demand. So we remain quite positive on this thing.

Everyone is talking about the massive opportunity and stellar growth that the specialty chemical sector is poised to see. Are you too betting on this basket?
Chemicals as a theme has been around for almost five-seven years and we have been playing for quite some time and I see that continuing to remain in a meaningful manner toward next five, seven, 10 years. A big shift is happening from the specialty chemical side from China to India as we know that chemical China is a global leader and a fairly large part of the global chemical supply is from China including for India. That shift has begun to happen now or has got accelerated right now and that can be extended to many more sectors.

The defence minister is looking to suspend the import of a number of defence items to boost the Atmanirbhar Bharat campaign. Are you betting on strong growth for the defence sector?
This is a very good initiative. The government has recently taken a lot of initiatives to promote manufacturing in India. The Prime Minister has put down 25% of GDP as a target for manufacturing. Even if it gets to 20% from 15-16%, you are talking about two and a half-three years. It will happen in the manufacturing space and that will spread across the board in many sectors – chemicals, APIs, defence, auto, auto ancillaries.

India has a distinct advantage. Defence is a very large importer. We are the largest buyers in the defence side and ever since the Prime Minister has come, he has talked about exporting defence equipment through India. The first step is obviously reducing imports and then you can go on to export.

The interesting part is that these policies that got announced yesterday will create an ecosystem. It is not possible to suddenly start manufacturing. You need to build the whole ecosystem and it takes 5, 10 or 15 years. The companies which are ready to capture some of the opportunities, like L&T, Bharat Forge have been here though it is a small portion of that.

They will tend to benefit from that but here the talk is about building the whole ecosystem. I will go back to when Maruti came in 1982. At that time, we did not have any auto ecosystem and it took 15-20 years to build the full graded ecosystem. Earlier 98-99% parts were imported into India. Today it is completely reversed and we are fully indigenised. The same thing probably will happen to defence and many more sectors as the government is pushing the whole Atmanirbhar Bharat programme.

Secondly, India’s competitiveness is significantly improved and that is a lot more sustainable advantage which India is getting into and that will push the actual rate towards manufacturing.

What is your outlook when it comes to autos, auto ancillaries?
That is one sector where we already have a lot of capabilities and competencies. We have competitive advantage, we have large scale capacities both in the automobile space and auto component space. As this path accelerates, you can see this getting bigger and bigger.

I do not have any doubt in my mind that India’s labour cost is cheaper than China’s. The power cost is more or less the same as China’s; logistics cost is significantly improving. It is not at a disadvantage when compared. If you collect a lot of dots, we already have one of the lowest tax rates in the world as far as manufacturing is concerned.

If you connect a lot of dots, over the next three to five years, many of these sectors where India already has skill advantage or we have some sort of cost advantage, where there is government push will include some of those sectors across auto, auto components, APIs, specialty chemicals and even defence, wherever there is a skill based requirement even in capital goods.

By the way, India stands to gain a lot. India is very good in that and it is one sector which can leapfrog from here. The interesting part here is that one could keep in mind that India has a strong domestic demand. When you combine domestic demand with an incremental export opportunity, it creates a great business proposition and economies of scale kind of environment and that will accelerate the whole journey far better than most of us expect. So, when a trend builds, it looks fit. But over a period of time, it becomes very big.

You can go back and check when pharma happened. India did not have any ecosystem but today we have created a significant pharma industry. When IT happened, India did not have a great ecosystem but over a period of time, it just tends to build. You have to take a view with a 8-10 years perspective you cannot look at just one or two years.

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