An Optimistic Voice in a Cautious Market
Sandip Agarwal, a fund manager and co-founder at Sowilo Investment Managers, has emerged as a prominent bullish voice on the Indian IT sector. His recent prediction, suggesting that rating agencies could begin upgrading IT companies as early as the next
quarter, stands in contrast to the broader market sentiment that has seen the Nifty IT index slump in 2026. For months, the industry has been weighed down by fears of AI-led disruption, weak client spending in key markets, and global uncertainties. Agarwal, however, believes the worst of the pricing pressure from AI is nearly over and that recent stock dips are more related to US market volatility than fundamental weakness in Indian firms. He argues that the market has confused a cyclical downturn with a permanent disruption, setting the stage for a recovery.
The AI Factor: From Threat to Opportunity
The primary driver behind this renewed optimism is the evolving role of Artificial Intelligence. Initially seen as a major threat that could make traditional IT services obsolete, enterprise AI is now viewed as the next big growth engine. Agarwal contends that while AI is deflationary—meaning it allows for work to be done more efficiently and at a lower cost—much of this price correction has already been absorbed. He suggests that once this phase of stabilisation passes, likely by the September quarter, real growth will become more visible. Indian IT firms are increasingly becoming essential partners for global companies looking to implement complex AI solutions, moving from being simple service providers to crucial integrators of new technology. This transition is expected to unlock new, high-value revenue streams, even if it changes traditional billing models.
Signs of a Turnaround
Agarwal's forecast isn't based on optimism alone. He points to stabilising deal numbers as a leading indicator of a revival. The argument is that after an initial period of shock and reassessment due to AI, clients are now returning to more normal decision-making cycles. While reported revenue growth may still appear low, he suggests that if you adjust for the lower pricing on new AI-driven contracts, the underlying growth is actually much stronger. He anticipates that after the current stabilisation phase, the sector can settle into a sustainable 6-7% dollar revenue growth, leading to 12-13% profit growth. This earnings recovery, combined with more reasonable stock valuations after the recent correction, forms the bedrock of his bullish thesis.
A Reality Check: Headwinds Remain
Despite the positive outlook, significant challenges persist. Several analysts maintain a more cautious view, pointing to muted revenue growth forecasts of 1-3% for the current fiscal year. Weak discretionary spending from clients in the US and Europe remains a key concern, and geopolitical issues could add further pressure. The transition to AI-centric models is not without friction. Companies are in a race to adapt, and the shift is leading to slower hiring and a focus on reskilling the workforce. Some experts warn that AI could shrink the managed services business, a major revenue source for Indian IT giants. Agarwal himself is cautious on certain sub-sectors like engineering research and development (ER&D), which he believes is more exposed to AI disruption.
