He expects more such deals across the sector over the next three to five years, as companies look to revive growth and expand their capabilities instead of relying on dividends or share buybacks.
Agarwal said TCS’ acquisition represents a better use of capital than keeping cash on the balance sheet. “The alternate use of that fund… would have got them 3-3.5% post-tax return. I think this is a much better use of that money,” he said.
He added that the acquisition not only has the potential to generate higher returns but also helps TCS build new capabilities, expand into additional markets and strengthen its presence in the automotive technology segment.
Agarwal believes the acquired business also offers scope for margin expansion over time. While MHP currently operates with around 10% margins through an onsite delivery model, he said integrating TCS’ offshore capabilities could improve profitability. “In the short term there could be some dilution, but I think definitely it will be EPS accretive,” he said, echoing TCS management’s view that the transaction is aimed at creating long-term value.
Agarwal expects acquisition-led growth to become more common across the Indian IT industry. He said companies including Persistent Systems and Coforge have also been pursuing acquisitions as they adapt to slower industry growth after the post-pandemic boom. “Small deals will keep on happening in the space, and slowly they will move towards the Accenture model,” he said, referring to the global IT services firm’s strategy of making multiple acquisitions each year.
He also dismissed concerns that TCS’ stronger position in the automotive software market would hurt rivals such as KPIT Technologies. According to Agarwal, Indian IT companies generally operate alongside each other at global clients rather than competing directly for the same contracts. “Indian versus Indian competition is like 2-3% cases, not more than that,” he said, adding that the expanding technology ecosystem benefits multiple service providers.
Agarwal said demand for artificial intelligence (AI) infrastructure remains healthy and expects enterprise AI adoption to support IT services companies in the coming months.
He also played down concerns around the proposed increase in US H-1B visa fees, saying the impact on Indian IT firms would be limited. “Even in the worst-case scenario… it will be a 1-1.5% impact for the whole Indian IT sector,” he said, adding that companies should be able to pass on a large part of the additional cost to clients.
For the full interview, watch the accompanying video
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