IT & AI wave: Raamdeo Agrawal says Indian technology firms to be darlings in artificial intelligence era

Market veteran Raamdeo Agrawal says domestic IT firms have been able to be relevant despite several disruptions in technology in the past and that they should continue to do so, even in the artificial intelligence (AI) era. In an interview to BT TV, Agrawal said he sees Indian IT firms to be darlings of corporations globally as soon as AI adoption picks pace in the next 3-4 years.  

Agrawal said Indian IT sector is a combination of entrepreneurship and skills and that India story starts with IT. A lot is going to happen in this space, Agrawal said adding that the next 20 years will be driven by innovations in AI. That would differentiate a lot of services companies, Agrawal said while noting that it was too early to suggest companies that will be able to harness the power of AI.

"India IT firms have been able to stay relevant in every wave of technology change -- whether it is ERP, Dotcomm or digital. I am quite sure that when the AI is in full bloom in the next 3-4 years, Indian IT firms would be the darlings of corporations across the world. It would be an interesting time. But it is too early to name a company," Agawal said.

Agrawal said the $3 trillion Indian stock market should be around $9-10 trillion mark over the next 10 years but wonders whether retail investors have patience to stay put. The market is all about the patience, Agrawal concluded.

He said TCS, Wipro and Infosys were small companies in 2000 but are giants now. One has to give time not only to the company to grow but also to the market itself, he said.

Agrawal, who is hopeful about corporate earnings over the next 12 months, said the market delivered 13-14 per cent return annually over the last 35-40 years and that the future is even brighter. Even if one does not assume optimistic estimates and consider the earnings growth in the next 40 years to be similar to the last 40 years, Agrawal said 12-15 per cent returns annually are possible in the long-term.

Spotting multibaggers

Agrawal said a 10 times return in 10 years is decent -- 25 per cent return compounded annually, and would be considered a 'multibagger'. To achieve such a return, Agrawal says a retail investor needs to identify companies that can deliver a 25 per cent growth in earnings over the next decade. Agrawal said if the investor got his projections right, he may end up seeing 23-28 per cent returns annually over the decade period, thanks to re-rating on the counter.

"If you are conservative in buying price, that is how a portfolio approach works. Out of 10 stocks, you will get 4-5 stock selections right while another 4-5 will deliver mediocre returns. But you will still end up getting 24-25 per cent return annually," Agrawal said.

Agrawal said one has to do homework, focus on the company's earnings, make sure one understands the business of the company well and make spreadsheets on those companies.  

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