2019 saw the continued emergence of Australian tech companies on the ASX, with a healthy stream of new listings.

There were also some impressive returns on offer for tech-focused investors with a higher risk profile.

But after a strong year, the outlook for 2020 is arguably more complex. The potential for more rewards also comes with higher risk, as investors assess the prospects for further growth.

As a principal at crossover investment fund Alium Capital, Rajeev Gupta has had a front row seat to the growth story associated with Aussie tech companies – some of which Alium has invested in directly.

Speaking with Stockhead just before Christmas, Gupta said he expected investor expectations to be a little more grounded in reality next year, with a focus on cashflow and underlying profits rather than just lofty revenue projections.

But over the longer term, he still thinks the tech narrative – both in terms of the broader macro environment and specific company projections – could have plenty further to run.

Gupta said that with central banks embarking on another round of monetary easing in 2019, market expectations were for interest rates to remain lower for longer.

Such an environment is generally positive for risk-asset demand. And for capital allocation with a higher risk profile, local tech plays are a more compelling story.

“Generally speaking, the growth rates associated with tech are significantly positive relative to the banks and miners which have a stronger index weighting,” he said.

“Taking it beyond geopolitics and economics though, I do feel that next year for tech and innovation companies the focus will turn to ‘what is your path to profitability?’”

“Will you continually raise capital, and if you raise capital is it for growth or expenses? Equity markets do not want companies raising capital to a) pay for expenses or b) pay dividends. They want you to grow as long as the global economy remains robust.”

But while not every company will meet Alium’s criteria in terms of sustainable profit growth, Gupta said that as an investor, he expected to be involved in the sector for a long time to come.

“We remain focused on technology and companies investing in innovation,” he said, adding that Alium is working with “a good pipeline of companies that will list next year”.

Gupta said that even if equity markets fell back from their current highs, that didn’t necessarily mean IPO activity would dry up.

He cited 2008 as an example, which was “still a robust year for public offerings” even though the global financial crisis peaked with the collapse of Lehman Brothers in September of that year.

But more broadly, the increasing prevalence of tech companies in the Australian market is a train Gupta says is worth getting on.

“We still feel the representation of tech on the broader index here in Australia is low,” he said.

“In weighting terms, tech comprises around 10 per cent of the ASX index, whereas in the US it’s around 55 per cent.

“So we think that number here will continue to get stronger and larger. And as a result, our fund is maintaining a decent exposure to that thematic.”

“It’s a long-term view – this isn’t a six-month or one-year theme,” Gupta said. “I think it’s a secular idea where technology becomes a much more important component of the index over a 10-year horizon.”