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Technology spending has increasingly become a necessity rather than a discretionary expense, with Indian IT companies historically outpacing global growth due to talent availability and the adoption of the global delivery model—a trend expected to continue despite cyclical moderations, says Balakumar B, Fund Manager & Senior Equity Analyst, HDFC AMC.Edited excerpts from a chat:HDFC Technology Fund focuses on a sector that is dynamic and fast-evolving. What is your core investment philosophy when managing this fund? How do you balance between established tech giants and emerging players in the portfolio?The key industries that form the core (80%+ of AUM) of the Fund are IT (services, software and hardware), telecom, internet and media. These sectors vary in terms of growth profile, competitive landscape, leverage, and profitability/return metrics. Within the industries as well, you have quite a few established large companies and many emerging companies, which provides options for active investing. We follow a bottom-up investment strategy, focusing on both a) industry leaders with competitive moats at reasonable valuation and b) disruptors and market share gainers with potential for re-rating and higher compounding, where traditional valuation metrics may not be as relevant.India’s tech sector is traditionally dominated by IT services companies. Do you see this changing with the rise of SaaS, AI, and fintech startups?Yes, we are seeing our technological prowess expanding into newer segments. Indian companies are gaining scale in SaaS, with the largest SaaS company generating over US$1 billion in annual revenues. India's digitalisation story is dominated by Indian startups, which have gained scale now, in segments such as ecommerce, food delivery, payments etc. This will help provide further diversification opportunities for the fund over the foreseeable future. Given the global slowdown in IT spending, what is your outlook for the Indian IT sector in the next 3-5 years?Over time, technology spends have become more of a necessity, rather than discretionary. If we look at tech spends as percentage of GDP for countries or tech spends as percentage of revenues for enterprises, the number has gone up over the long term, signalling increasing technology intensity. Barring cyclical moderations, we expect the trend to continue. Historically, the Indian IT sector has grown faster than global IT services spending, as the companies gained market share due to the talent availability and adoption of the global delivery model by customers. We expect this trend as well to continue.Post the sharp pick up in tech spends during the pandemic, we saw normalisation of growth in CY23/24. We expect the growth rate to recover. However, the pace of recovery is dependent on global economic growth which has seen some uncertainty being induced by geopolitical tensions. The technology sector has seen significant corrections in the past. How should retail investors approach sectoral funds like HDFC Technology Fund?The Fund is categorized as a Sectoral / Thematic Fund as per the SEBI categorization. Hence, it carries higher risks versus diversified equity mutual funds on account of concentration and sector specific risks. Do you see quick commerce as a viable long-term business model? Can companies in this space eventually become profitable, or is it a case of chasing scale with uncertain unit economics?The rapid adoption of the business model underscores the consumer need. Quick commerce penetration is still at low to mid-single digit of the underlying market. For further penetration, it needs continued investments in customer acquisition, supply chain and technology. As per the disclosures by companies in the segment, older dark stores are already profitable. When the competitive pressures ease and the pace of investments normalise, quick commerce could become profitable, as we have seen in food delivery.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)

The rise of quick commerce has caused a significant decline in the sale of food, beverages and confectionery in urban centres, as 52 per cent of physical store retailers reported experiencing the drop, according to a report by global consulting firm PwC.The report says that beyond food, personal care (47 per cent) and household cleaning (33 per cent) are also experiencing significant sales reductions.This suggests that quick-delivery models are more disruptive for consumables that consumers frequently purchase in-store.Quick commerce, also known as q-commerce or on-demand delivery, is a type of e-commerce that can deliver orders in 10 to 30 minutes or less.However, the report added that despite the downturn in essential categories, niche markets such as childcare, beauty, and wellness appear to be less affected.This could point to the fact that these categories often involve more considered purchasing decisions, where customers may prefer to shop in-store or may have less immediate need for quick delivery services.On the flip side, q-commerce's expansion into tier 2 and tier 3 regions, as per our research, reveals a contrasting narrative as non-metro cities' retailers remain largely unpressured by Q-commerce's entry.On the other hand, q-commerce's growth in tier 2 and tier 3 cities tells a different story. Retailers in the non-metro areas are largely unaffected by q-commerce.The challenges in these regions include high delivery costs due to longer distances and inefficient inventory management caused by scattered demand, the report added.The report adds that despite the aggressive expansion of quick commerce businesses in India, brick-and-mortar retail remains a robust channel in the tier 2 and tier 3 cities.While several striking findings emerged in the survey, one that caught PwC's attention was the continued success of brick-and-mortar retail in tier 2 and 3 cities.The retail market in India is expected to grow to USD 1,892 billion by 2029-30, at a compound annual growth rate (CAGR) of 10.3 per cent, with e-commerce, the fastest growing channel, notching a CAGR of 22.5 per cent and touching USD 220 billion by 2029-30, as per the report.The PwC report found that nearly 50 percent of Indian consumers prefer a hybrid model, including both online and offline options, when making purchases.