Indian IT stocks could deliver at least 30–40% returns over the next two to two-and-a-half years, supported by their strong management teams and healthy cash flows, according to Sandip Agarwal, Fund Manager at Sowilo Investment Managers, which manages assets worth over $25 million.

Agarwal expects the sector to benefit from improving operating leverage, currency gains and rising demand for AI-related services. He believes concerns over margin pressure and AI-led deflation, which weighed on the sector over the past eight to nine months, will gradually ease.

“It will be almost zero, and you will see all the growth which these companies are able to get that will show up as net growth,” Agarwal said, referring to the declining impact of AI-led deflation on IT companies' growth.

He expects the December quarter and the March quarter to show a lower impact from AI-led pricing pressure. As revenue growth improves, operating leverage could also help margins recover, supporting earnings growth in the coming financial year.

Agarwal added, “We believe that sector itself has a lot of upside. As I said earlier several times, I would reiterate that the profit after tax (PAT) growth will not be less than 45 to 70% depending on the companies in next three years.

Sowilo Investment Managers has significantly increased its exposure to IT stocks, reflecting its positive outlook on the sector. Agarwal said the fund manager had no exposure to the sector in March, but its portfolio allocation has since risen to more than 20%.

The portfolio currently holds around six to seven IT stocks, and the fund remains open to increasing its allocation if suitable opportunities emerge.

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