Agarwal expects largecap IT companies to post dollar revenue growth of 6–7%, midcap companies to grow 10–12%, and smallcap IT companies to grow 15–16%, over the next three to four years. He said the rupee depreciation adds to these returns on top of the dollar growth numbers.
Even if topline growth stays in the mid-single digits, Agarwal said, margin gains and enterprise adoption of artificial intelligence (AI) will drive earnings and stock returns higher. He pointed to a 20% gain in the IT sector over the past month alone as evidence of the trend playing out already.
CLSA and Kotak had remained bullish on largecap IT names, arguing the stocks traded below intrinsic value and were therefore inexpensively priced. Both brokerages reversed that stance this week, downgrading largecap IT companies. When asked about the shift, Agarwal countered that fears over slowing growth are set to fade as AI adoption widens.
He also addressed concerns that rising competition from global IT companies such as Accenture, Capgemini and Cognizant, which outgrew Indian largecap IT peers last quarter, could squeeze growth and pricing for domestic players. Agarwal said he does not expect topline growth to fall to 3–4%, citing 25 years of tracking the sector and a pattern of company guidance consistently landing below what management later delivers.
Within the sector, Agarwal said his order of preference runs smallcap first, then midcap, then largecap. He carved out an exception for engineering, research and development (ER&D) companies, which he said trade at high valuations without pricing in disruption risk from AI.
“I love the hardware players the most because I believe that hardware players have a long way to go still from here,” Agarwal said, naming hardware as his top pick within the broader IT space.Sowilo Investment Managers has raised its exposure to the sector through the year. “From zero weight before March, we are now almost like 15-20% weight, which includes hardware players also,” Agarwal said, adding that the fund may add further to the position.
For the full interview, watch the accompanying video
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