Indian IT Sector: 20-30% Upside Expected

Veteran fund manager Sandip Agarwal offers a nuanced, yet optimistic, outlook for the Indian IT sector, suggesting that the worst phase is likely behind us. Agarwal anticipates a potential return of 20-30% from current levels for the IT index, possibly referring to indices like the Nifty IT [NIFTYIT], though he advises against expecting a long-term structural bull run.

According to Agarwal, a key driver for this positive shift is the return to normal decision-making by clients, who now have greater clarity regarding Artificial Intelligence (AI) integration and its implications. This renewed client confidence is expected to translate into improved business prospects for Indian IT service providers. Companies within the sector could realistically achieve a dollar revenue growth of 6-7%, a healthy rebound from recent subdued performance.

Despite the positive near-term prospects, Agarwal cautions investors against exposure to the Engineering Research & Development (ER&D) segment within IT. He projects that fiscal year 2027 (FY27) will likely witness stronger performance compared to fiscal year 2026 (FY26), indicating a gradual but sustained recovery over the medium term.

This perspective suggests a period of tactical opportunities for investors in Indian IT stocks, driven by a cyclical recovery rather than fundamental, long-term shifts that characterize a structural bull market. Investors are encouraged to select companies carefully, focusing on those best positioned to capitalize on client spending and AI integration while heeding the advice to avoid specific sub-sectors.

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