The Analyst's Core Argument
For months, the narrative around Indian IT has been one of caution, dominated by weak discretionary spending, geopolitical uncertainty, and the disruptive force of Artificial Intelligence. However, Sandip Agarwal has recently turned bullish, arguing that
the worst is over for the sector. He believes the July to September 2026 period will mark a stabilization point, setting the stage for a gradual but meaningful recovery. His thesis is built on the idea that the initial shock of AI is now being absorbed and that clients are moving past the phase of indecision that stalled projects and budgets.
From AI Disruption to AI Opportunity
A key pillar of Agarwal's optimism rests on the evolution of the AI investment cycle. The first wave was all about hardware, benefiting chipmakers as companies built foundational infrastructure. Now, he argues, the focus is shifting to software and services. Enterprises that spent heavily on building AI capabilities now need partners to deploy, manage, and integrate these complex solutions. This is where Indian IT services firms come in. Agarwal suggests that while AI has a deflationary effect on pricing for some traditional services, this masks the underlying demand. He estimates that once this pricing reset is fully absorbed over the next couple of quarters, a clearer picture of growth will emerge.
Signs of a Stabilizing Market
Agarwal points to stabilizing Total Contract Value (TCV) numbers as a primary indicator of a forthcoming revival. While the conversion of these large deals into actual revenue takes time, consistent deal wins are a sign that clients are resuming more normal decision-making processes. Furthermore, he believes that the panic selling in IT stocks, often influenced by trends in the US market, has been overdone. With valuations becoming more reasonable after a prolonged correction, he sees a significant upside for investors, predicting potential returns of 45% to 70% over the next three years as earnings growth returns.
The Road Ahead: Modest Growth, Better Profits
It's important to note that Agarwal is not forecasting a return to the explosive, double-digit growth of the past. Instead, he anticipates the sector settling into a more sustainable phase of 6-7% annual dollar revenue growth. This, combined with operating efficiencies, buybacks, and the tailwind from rupee depreciation, could translate into more robust profit growth in the range of 12-13%. He expects earnings upgrades for IT companies to begin within the next six months as stability returns to their quarterly results. However, he remains selective, advising caution on Engineering Research and Development (ER&D) firms, which he believes are more exposed to AI disruption and still have expensive valuations.
A Contrarian View Amidst Caution
Agarwal's positive stance is not shared by everyone. Several other market reports project a more challenging near-term future, with muted revenue growth expected to continue for another fiscal year or two. Analysts at CRISIL and other brokerages point to ongoing pricing pressure from AI, weak discretionary spending by clients in the US and Europe, and geopolitical overhangs as reasons for continued caution. These reports suggest that while IT companies are adapting, the transition will keep revenue growth in the low single digits for now. The divergence in outlook makes the upcoming Q2 earnings season (July-September) a critical test for the sector, one that will either validate Agarwal's turning-point theory or reinforce the more conservative consensus.
