India's information technology sector is poised for a significant earnings recovery after nearly two years of muted growth, according to market expert Sandip Agarwal from Sowilo Investment Managers. Speaking to ET Now, Agarwal said he turned positive on the sector about six weeks ago after maintaining a cautious stance for more than a year. The artificial intelligence investment cycle is now moving beyond the initial hardware-intensive phase, with the next stage increasingly benefiting software platforms and IT services companies. Agarwal expects the sector's growth rate, which has hovered near zero in recent years, to improve to around 6-7% annually over the next few years, representing a meaningful turnaround for the mature industry.
Despite near-term challenges, India's core drivers of long-term growth continue to remain strong, according to Hindustan Unilever's Chairman Nitin Paranjpe in his latest shareholder note. As reported by Business Standard, Paranjpe emphasized that India's GDP continues to grow among the fastest globally, supported by structural reforms and a policy environment that fosters investment and enterprise. The financial year tested business adaptability and resilience, with geopolitical tensions, commodity volatility and rapid technological shifts reshaping operating environments worldwide. India has consistently demonstrated resilience, emerging stronger through periods of uncertainty, with the country now among the most connected economies globally through its more than 800 million internet users.
Indian equities face a mixed outlook due to potential monsoon deficit and uneven corporate earnings, according to Pankaj Pandey, Head Research, ICICIdirect.com. As reported by The Economic Times, while rural-linked sectors may see pressure, broader market impact is expected to remain contained. Nifty earnings for Q4 are estimated at around 5% growth, largely in line with expectations, though sectoral divergence remains sharp with nearly 20% of Nifty companies under pressure. Financial earnings showed relatively better performance at 7% growth during the quarter. Recent developments show Motilal Oswal reported Q4 FY26 earnings surpassed expectations with aggregate profits rising 16% year-on-year against its 8% estimate, driven by strong performances from BFSI, metals, OMCs, technology, telecom and automobiles sectors.
Currency movements are expected to significantly boost profitability for Indian IT companies over the next two to three years, according to Agarwal's analysis. He noted that over the last decade, many developed markets aggressively pushed localization requirements, forcing Indian IT firms to hire more local employees, which largely offset the benefits of rupee depreciation. "We have crossed those limits. So incrementally, from here onwards, whatever benefit the rupee gives, that benefit will show up in the PAT of most IT companies," Agarwal explained. The combination of moderate revenue growth and a weaker rupee could lead to meaningful margin expansion across the sector, which in turn could translate into substantial earnings growth. This represents a fundamental shift from the previous localization-driven cost structure.
While Agarwal does not expect a dramatic valuation re-rating for the IT sector, he believes earnings growth alone could generate attractive shareholder returns of 70% over the next three years. He advised investors to focus on software services companies with PEG ratios below 1.5 to 2 times, avoiding engineering research and development companies whose valuations remain expensive despite superior growth rates. "In the small-cap space, software services is what we like. Those are available at 0.8 to 0.9 times PEG ratio," Agarwal noted. He also warned against buying companies solely because they appear cheap, emphasizing that "some problems that companies have had over the last 10, 20 years—whether leadership issues or something else—will not change just because growth is coming back." Looking ahead, companies are investing decisively in India's future through strategic reimagination with consumers at the centre, sharpening portfolios, and embedding technology across operations.
