IT services growth to remain modest, even for global players, says Sandip Agarwal

Sandip Agarwal, Fund Manager at Sowilo Investment Managers, said that growth in IT services is likely to remain muted in the coming years. According to Agarwal, expecting double-digit revenue growth is unrealistic as the industry has matured. “I don’t think it is going to happen,” he said, emphasising that even global players like Accenture have managed only mid-single-digit growth consistently.Agarwal stated that while rupee depreciation may provide some margin support, the impact on overall earnings will be limited. He explained that many companies hedge most of their near-term revenue, so benefits primarily show at the Earnings Before Interest and Taxes (EBIT) level rather than in net income.

When discussing artificial intelligence (AI), Agarwal cautioned against overestimating its effect on IT services growth. While AI can improve efficiencies, it is also reducing human effort by 30-40%, which caps revenue expansion. He said, “We are trying to find big tech in our Indian universe… but not in the same space as consumer tech.”

Agarwal also said that the engineering R&D (ER&D) sector is growing faster than IT services, potentially 2-2.5 times the rate. However, valuations are extremely high, with price/earnings-to-growth (PEG) ratios in the 40-50x range, which could limit returns despite strong growth potential.

Also Read: TCS shares continue rebound from 52-week low ahead of Q2 results; Here’s what to expectOn global technology stocks, Agarwal cautioned about frothy valuations, particularly in the AI space. He believes a pause is likely, creating opportunities for challenger firms while main players may see their market caps decline. He added that while AI is disruptive, the money currently flowing into some companies is excessive and unsustainable.

For the entire interview, watch the accompanying video

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