Sowilo Investment Managers' Fund Manager Sandip Agarwal maintains an optimistic outlook for the IT sector, projecting cumulative earnings per share (EPS) growth of 45% to 70% over the next three years. According to reports from CNBC TV18, 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 noted that rupee depreciation adds to these returns on top of the dollar growth numbers. The fund manager continues to hold his bullish call on the sector even after brokerages CLSA and Kotak downgraded largecap IT stocks this week.
Despite recent brokerage downgrades, Agarwal points to strong market performance as evidence of positive trends. As reported by CNBC TV18, he highlighted that the IT sector has gained 20% over the past month alone, demonstrating the impact of margin gains and enterprise adoption of artificial intelligence (AI). Even with topline growth remaining in mid-single digits, he expects AI adoption and margin improvements to drive earnings and stock returns higher. The fund manager counters fears of slowing growth, arguing that AI adoption will widen and set growth concerns aside. He 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.
Recent market developments have seen brokerages CLSA and Kotak reversing their bullish stance on largecap IT stocks this week. According to CNBC TV18, both brokerages had previously argued that IT stocks traded below intrinsic value, but have now downgraded largecap IT companies. Agarwal addressed concerns about rising competition from global IT companies like Accenture, Capgemini and Cognizant, which outgrew Indian largecap IT peers last quarter. He stated 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.
Agarwal's investment approach prioritizes smaller companies within the IT sector. As reported by CNBC TV18, 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. Within the sector, he identified hardware players as his top pick, stating he believes hardware players have significant growth potential ahead. Sowilo Investment Managers has increased its sector exposure, raising it from zero weight before March to 15-20% weight, which includes hardware players, with potential for further additions to the position.
