At a time when market participants have been gripped by fears over artificial intelligence cannibalising tech budgets, leading to a grim sentiment over the IT sector, Sandir Agarwal, fund manager at Sowilo Investment Mnagers, is urging investors to heavily back India's IT sector while strictly avoiding engineering research and development stocks.
Speaking to NDTV Profit, Agarwal argued that adoption of AI enterprise will be a long and complex process that may play into the hands of service integrators.
"Although AI is going to cut down efforts by 20–30%, I think the quality of outcome will improve substantially, and that is the reason I believe that it is a wrong way to look at [it as] overall tech budgets will go down," Agarwal explained. "If that happens, then I think the services firms will be the least impacted," he said.
Explaining his bullish view on Indian IT, Agarwal pointed out that multiples are now highly attractive, especially following a significant drawdown in the recent past.
"IT services, whatever you get in a 1 to 1.5 PEG ratio, buy that," he said. "I think next two years you will see at least 16–17% PAT growth, and if that is the number, then I think the stocks will at least give 20 to 30% return from here."
Another key factor that may sweeten the deal further for IT companies is the recent 11-12% depreciation of the rupee. Unlike previous cycles where currency benefits were absorbed by local hiring costs, Agarwal expects these gains to flow directly to the bottom line owing to reduced operational pressures and remote work efficiencies.
That said, Agarwal is not so bullish against ER&D companies, as he drew a hard line.
"I am not at all recommending any of the ER&D companies. I think they are massively overvalued and there will be a big impact once this Ukraine and Russia war gets over," he warned
​For retail investors hesitant to pick individual stocks, Agarwal said, "Right now is a situation where you should go all-in. If you don't want to do specific cherry-picking, buy the index; that will be a good call."
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