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HomeMarket NewsSmall IT companies could benefit most from AI, says Sowilo Investment's Sandip Agarwal
Sandip Agarwal, Fund Manager at Sowilo Investment Managers said that artificial intelligence technology is already disruptive but will become more efficient over time as hardware and power costs come down. Larger IT firms may benefit after a few years, though the extent of that growth remains uncertain.
Sandip Agarwal, Fund Manager at Sowilo Investment Managers, said India’s IT sector growth will differ across large, mid, and small companies.
“We need to see very clearly in three pockets,” he explained. Largecap IT firms, he said, will likely see only 5-6% growth because of saturation in developed markets. Midcap firms, which grew strongly after COVID, may come down to low double-digit growth. Smaller companies, though fewer in number, could see faster growth. “In the 2022 COVID disruption, the midcaps were beneficiaries. The artificial intelligence (AI) part, the smallcaps will be the beneficiary,” he said.
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Agarwal added that the sector still has positives, such as dividends and buybacks. Broader fund flows into index-linked products will also benefit IT stocks. “While valuations have come down, fundamentally, the peg ratios have not come down. But the underperformance means that the downsides may be limited,” he said, noting IT may replace some fast-moving consumer goods (FMCG) stocks as a defensive sector in the coming years.
He believes smaller IT firms are better placed to adapt to AI projects. “It will be very easy for them to do $50,000–$100,000 projects in AI and machine learning,” Agarwal said, explaining that large firms like Infosys or TCS may take longer to show meaningful impact from AI because of their size.
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He said that artificial intelligence technology is already disruptive but will become more efficient over time as hardware and power costs come down. Larger IT firms may benefit after a few years, though the extent of that growth remains uncertain.
Agarwal also expects more Indian companies to emerge in AI development. “In the next three to four years, you will see a lot of companies coming out of Pune, Hyderabad, Chennai, Bengaluru, who will be deeply entrenched in this space,” he said.
For the full interview, watch the accompanying video
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