Mumbai, India – Raamdeo Agrawal, Chairman and Co-Founder of Motilal Oswal Financial Services Ltd (MOFSL), anticipates a period of significant earnings expansion for Indian markets. In an exclusive interaction, Agrawal projected that the Nifty could deliver returns of 40-50% over the next two to three years, provided the current earnings momentum is sustained.
While acknowledging the possibility of a near-term market downside of 5-10%, Agrawal asserted that the overall risk-reward ratio for investors remains highly favorable. He highlighted that the years with the highest earnings growth typically correlate with the best market performance.
Indian IT Sector Must Evolve Beyond Headcount Model
A key focus of Agrawal's commentary was the Indian IT sector. He noted that while IT stock multiples have seen corrections and profitability remains resilient, the traditional headcount-driven growth model is now under scrutiny. Agrawal questioned the sustainability of growth for companies relying on expanding their workforce from half a million to a million people to deliver IT services.
He stated, "After 30 years of building a headcount-driven IT model, I think the Indian IT sector will have to rediscover its growth model." Despite this challenging period, Agrawal expressed optimism that the sector would find new ways to service global enterprises by acquiring new skills and strengthening its international presence, though he remained cautious about the exact growth levels achievable.
AI and Macroeconomic Factors
Agrawal identified artificial intelligence (AI) as a more significant long-term challenge for the Indian IT sector compared to crude oil prices, which he views as less of a protracted concern. He noted that India's position regarding AI, where its IT sector was initially losing out, is now reversing.
Regarding the broader AI-driven market rally, Agrawal believes the AI boom will continue in a milder form rather than collapsing. He described it not as a bubble, but suggested a potentially deep correction driven by "AI deflation." He also pointed to the Indian rupee's stability as a crucial factor for attracting foreign investor confidence, particularly as domestic earnings are already strong.
Looking ahead, Agrawal suggested that if US earnings are not encouraging year-on-year, it could lead to a slowdown or correction in the US market, potentially diverting investment flows into emerging markets like India, where allocations have recently decreased.