HCLTech has committed an initial investment of ₹3,500 crore towards its AI data center business and plans to scale capacity to 50 megawatts, according to the company. The IT major aims to combine data center infrastructure with AI services as part of its offering.
Tata Consultancy Services has also entered the space through its own data center initiative, highlighting the growing focus of India’s largest IT firms on AI infrastructure.While these investments are expected to generate lower standalone return ratios than traditional IT services, he said they have the potential to create stronger long-term value by combining infrastructure with AI-driven services.,
Agarwal believes standalone data center operators, particularly those backed by real estate developers, could face pressure over the long term as the business becomes increasingly commoditised.
In contrast, he expects IT services companies to benefit by combining infrastructure with software and AI capabilities, giving them a stronger competitive edge. He also argued that the market is mistaking a structural technology disruption for a normal business cycle, saying the convergence of hardware and software is unlike anything seen in decades.
He added, “In my view, all these companies will do phenomenally well. Just wait six to 12 months, you will see good, good numbers coming in from these companies.”
The fund manager also remains optimistic about the broader outlook for the Indian IT sector, expecting healthy earnings growth over the next three years despite concerns around AI disruption.
He believes AI should be viewed as a structural technology shift rather than a cyclical slowdown and expects Indian IT companies to benefit as enterprises increase spending on AI-led transformation.
“Most of these companies should give you 45 to 70% cumulative EPS growth in next three years.”
Agarwal expects investors to benefit even if valuations remain unchanged, as earnings growth alone could drive meaningful stock returns over the medium term.
On stock selection, he prefers conventional IT services companies over engineering research and development (ER&D) firms. He believes ER&D businesses could face near-term pressure because manufacturing-related demand remains weak and AI disruption is currently highest in product engineering.
He added that distinctions between largecap and midcap IT companies have become less relevant as smaller firms are increasingly able to compete for large technology contracts. Instead, investors should focus on business mix, technology capabilities and exposure to AI-led opportunities rather than company size alone.
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