Largecap tech, pure-play software services companies are a ‘sell on rise’, says Dipan Mehta

Investors should adopt a “sell on rise” strategy for largecap and pure-play software services companies amid stagnant growth and intensifying secular challenges, according to market expert Dipan Mehta.

He added, “If you want to invest in software services companies, you have to find some niche companies, some companies which are totally focused on a specific vertical, like Tata Technologies, Tata Elxsi and KPIT Technologies or then you have to find companies which are very aggressive and which are able to ride the AI wave far better than the industry, like a Persistent Systems or a Coforge.”

Beyond this handful of names, the broader space remains a sell on any trading bounce.

According to Mehta, the ability to deliver stronger revenue growth will be crucial for IT companies to generate attractive returns for shareholders. Companies growing at 5-10% may struggle to meet investor expectations, particularly as AI reshapes the industry.

“For an investor to make decent returns, the company has to grow at minimum 15% top line,” he said.

Mehta added that he sees limited scope for most software services companies to return to such growth levels, given the challenges facing the sector.

Mehta expects AI to have a growing impact on the software services industry, with benefits likely to be concentrated among a limited number of companies.

Businesses with specialised capabilities and the ability to adapt to changing technology trends could be better placed to benefit. Others may find it difficult to sustain growth as AI adoption increases.

While IT stocks could see further rallies in the near term, Mehta believes investors should look beyond short-term price movements and assess companies’ long-term growth prospects before investing.

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Largecap tech, pure-play software services companies are a ‘sell on rise’, says Dipan Mehta

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