Indian IT Sector Poised for Earnings Recovery, Says Sandip Agarwal
IT sector entering a new growth phase, says Sandip Agarwal; sees strong earnings upside ahead
Image: The Economic Times
Sandip Agarwal from Sowilo Investment Managers predicts a significant earnings recovery for India's IT sector after two years of stagnation. He cites the shift towards AI-driven services, favorable currency movements, and improved valuations as key factors for a growth rate of 6-7% annually over the next few years.
- 01Agarwal has shifted from a cautious to a positive outlook on the IT sector, projecting a growth rate of 6-7% annually.
- 02The AI investment cycle is moving towards software platforms, benefiting IT services companies as enterprises seek to implement AI solutions.
- 03Currency depreciation is expected to enhance profitability for Indian IT firms, with the localization adjustments largely completed.
- 04Agarwal advises focusing on software services companies with PEG ratios below 1.5 to 2 times, avoiding expensive engineering research and development firms.
- 05He anticipates a 70% growth in profit after tax (PAT) for the sector over the next three years, driven by moderate revenue growth and currency benefits.
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India's IT sector is on the brink of a significant earnings recovery after two years of muted growth, according to Sandip Agarwal of Sowilo Investment Managers. He has recently adopted a positive outlook, forecasting a growth rate of 6-7% annually as the sector transitions from hardware investments to software and services, particularly in the context of artificial intelligence (AI) adoption. Agarwal emphasizes that the initial phase of AI, dominated by hardware spending, is giving way to a focus on software platforms that will benefit IT services firms. Additionally, he highlights the potential for improved profitability due to favorable currency movements, as the localization adjustments have largely been completed. While Agarwal does not expect a major re-rating of sector valuations, he predicts a 70% increase in profit after tax (PAT) over the next three years, driven by moderate revenue growth and enhanced margins. He recommends investors focus on well-managed large-cap IT companies and select small-cap software firms with attractive PEG ratios, steering clear of expensive engineering research and development companies.
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The anticipated recovery in the IT sector could lead to increased job opportunities and enhanced earnings for employees within the industry.
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