India’s equity benchmark Nifty50 may be masking a deeper fault line. Two of its biggest sectoral pillars of HE services and consumption face headwinds that go well beyond cyclical weakness, says top Dalal Street stock picker Ravi Dharamshi whose company ValueQuest Investment Advisors manages around Rs 24,000 crore investor money.
“The index is inherently backward-looking and does not adequately capture most of the emerging sectors that are generating incremental growth,” Dharamshi told ET Markets in an interview. “The index tells you where the market is. The opportunity lies in where the economy is going.”
His warning carries weight. ValueQuest has been quietly repositioning itself for months, shifting capital away from consumer-focused exposures and moving away from IT services altogether, even before the geopolitical shock that has roiled markets over the past two months.
The structural problem of the two pillars
Dharamshi says IT services are in the early stages of AI-driven structural disruption – this is not a temporary lull in demand, but a fundamental rethinking of the sector’s business model. Consumption, in turn, suffers as a secondary casualty of the same transition: as IT employment and income growth slow, discretionary spending slows downstream.
“IT faces AI-driven disruption, while consumption is a second-order derivative of the same slowdown, as income growth and job creation adapt to this transition,” he said. “While overall valuations may appear reasonable, they do not fully reflect the underlying dispersion.”
This creates a worrying optical problem for investors based on readings at the index level. The apparent reasonableness at the highest level hides the deterioration of the fundamentals of the components which have historically motivated CleverReturns.
War, crude oil and a 3-4% profit decline
The geopolitical crisis has added a second layer of pressure. Dharamshi estimates that the ongoing conflict could reduce earnings growth for FY27 by 3-4 percentage points, lowering expectations from 16-17% to around 12-13%. The Union Budget had implicitly forecast crude oil price around $70, while oil has since moved closer to $90 for the entire year.
“Apart from rising crude and raw material prices, we are also seeing supply chain disruptions, high logistics costs and pressures on public finances,” he said. “It is important to note that this shock comes at a time when India was on the cusp of a cyclical recovery, making the timing unfortunate.”
If crude holds near $100, Dharamshi signals risks that go well beyond headline inflation. The real stress, he warns, is in sectors like chemicals, pharmaceuticals, fertilizers and agrochemicals, which rely heavily on crude derivatives for their production costs. Gas availability emerged as a parallel constraint.
“Crude is not just an inflation variable, it’s a supply chain variable. And that’s where the second-order impact becomes much more disruptive,” he said.
Where ValueQuest transferred money
Against this backdrop, Dharamshi’s company has made a decisive shift towards energy transition, defense and aerospace, AI infrastructure and network investments. The thesis is that a fragmented, security-conscious world will structurally reward countries and companies that build sustainable assets and self-sustaining capabilities.
“This is not a short-term trade; this is a structural reallocation of capital globally, and India is one of the biggest beneficiaries,” he said.
On electronics manufacturing and services, a sector that has seen sharp corrections after earlier enthusiasm, Dharamshi remains constructive but selective. He believes that the cycle is moving from assembly-driven growth, which has fueled the rhetoric but also excess valuation, towards component manufacturing and deeper value chain integration.
“Assembly drives volume. Components drives profit. And that cycle is just beginning,” he said.
In the data center space, Dharamshi sees one of the most significant investment opportunities of the decade in India. From a current base of around 1.5 GW, the announced projects could increase capacity to 8-10 GW in the short term, reaching around 15 GW by 2032-2033, representing around $150 billion in cumulative investments. His favorite game involves enablers: electrical equipment, network infrastructure and electrical components.
“The real money in a gold rush is rarely made by the miners; it’s made by those selling the tools,” he said.
The FII question
On the issue of returns for foreign institutional investors, Dharamshi believes that peace would likely trigger tactical flows and short coverings, as India is significantly under-owned, but sustained capital flows require more than geopolitical calm.
It highlights a structural disadvantage: REIT flows to India are taxed, unlike most other major markets, creating a persistent competitiveness gap. Without coordinated policy action to attract foreign capital in the form of stocks, bonds, FDI and NRI deposits, the loop of FPI outflows, rupee depreciation, inflation and widening deficits risks becoming self-perpetuating.
“The flows are not just looking for peace: they are looking for growth, stability and ease of capital movements. Fix these problems and the flows will follow,” he said.
The medium-term view: profit dispersion, not index returns
Despite this caution, Dharamshi’s structural outlook for India remains intact. Corporate balance sheets are deleveraged. A round of private sector investment is yet to come. The expansion of RoE, he argues, is a multi-year story – one that markets will examine to price in near-term macroeconomic disruptions.
“In the short term, macroeconomic data will dominate the news; in the medium term, earnings dispersion will dominate returns,” he said.
For investors still anchored in the Nifty, this profit dispersion constitutes the main risk. The pillars that built the index may no longer be the ones that guide its next chapter.
“If this cycle is about building real assets,” Dharamshi said, “we want to own the pipes, not the paint.”
