Traditional IT is cheap, but Abakkus is still staying away. Aman Chowhan explains why

Detailed summary

Abakkus Asset Manager is maintaining its focus on profitable digital businesses while steering clear of traditional IT services despite improved valuations. Fund Manager Aman Chowhan also sees a multi-year opportunity in manufacturing and capital goods, while identifying building materials and consumer durables as potential areas for fresh investments.

Financials remain the biggest sector overweight in the portfolios managed by Abakkus Asset Manager, accounting for around 30% of investments, followed by industrials, capital goods and engineering companies. The fund house has also shifted a bulk of the money from traditional IT services to profitable new-age technology businesses, while waiting for clearer triggers before returning to the IT sector.

Speaking to CNBC-TV18, Aman Chowhan, Fund Manager at Abakkus Asset Manager LLP, said the fund house continues to favour asset management companies (AMCs), wealth management businesses and distributors within the capital markets space. These investments account for around 5-7% of the portfolio, spread across at least four companies. It has limited exposure to stock exchanges, which Chowhan believes are "priced to perfection".

A few quarters ago, Abakkus completely exited traditional IT services, redirecting a bulk of the money towards new-age technology companies. The fund house is now focusing on businesses that are profitable or, at the very least, are not burning cash.

Its investments include food delivery and platform companies that are currently profitable. While valuations in this segment are likely to be higher than those of traditional businesses, Chowhan said Abakkus is comfortable paying a reasonable premium.

"We are not deviating from our style of avoiding loss-making companies," he said.

Despite more comfortable valuations in traditional IT services, the fund manager is not yet convinced that the sector offers a compelling investment opportunity. He believes the news flow will remain negative as AI companies continue to introduce more efficient versions of their products and face pressure to justify their valuations through growth.

Chowhan said Abakkus is waiting for specific business triggers before reconsidering the sector. Investing purely on the basis of attractive valuations, without evidence of a growth catalyst, is not part of its current strategy.

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