Infosys’ AI push reassures on business strength, but valuation worries linger, says Sandip Agarwal

India’s IT services sector continues to inspire confidence on the strength of its business models even as investors weigh valuations and long-term growth prospects in an AI-driven world. Insights from Infosys’ recent AI Day and investor interactions have helped clarify many concerns.

Speaking to ET Now, Sandip Agarwal, Sowilo Investment Managers said the company’s presentations addressed confusion among investors. While he remains cautious on valuations, he sees the sector’s fundamentals as robust.

“I do not think there is any confusion that the business models are very robust, built over four-five decades. We are the software factory of the world, no one can execute at our pace, scale, and price. Business model-wise they are doing a great job. The opportunities they spoke about, the legacy that needs reskilling and AI alignment, are very big.”

“My only issue has been with valuations. Stocks have corrected 30-40% in the past year, so there is some comfort, but I would wait for more numbers before changing my view.”

Business models evolving with disruption

Agarwal highlighted that Indian IT firms have historically adapted to technological disruption through reskilling and aligning with client needs — a pattern he expects to continue with AI adoption.“Our business model is simple. We serve top Fortune 500 clients, recruit from campuses, train at scale, and reskill to client requirements. Every disruption slowed growth temporarily, then pent-up demand came back. The only change now is client effort may drop 20-30% due to AI.”“If IT services growth continues despite reduced effort, my low-growth view may be wrong, and we could see a massive rerating. But structural changes — broader market participation and smaller deals — keep me cautious.”Strong preparedness across peersOn other major IT players, Agarwal expressed confidence that the industry is well placed for AI implementation and services.

“We may not be in hardware or LLM development, but implementation of AI, building agents, and services — we are the best. Large and mid-sized companies are doing phenomenal work. In 2–3 years, AI revenue could drive 30-35% for these firms.”

The road aheadWhile optimism around AI-led opportunities remains, investors are closely watching how quickly demand materialises and whether valuations reflect potential slower growth and increased competition. For now, the sector appears resilient, but conviction may depend on clearer revenue evidence in upcoming quarters.