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See strong, long IT upcycle; TCS, Infosys, HCL to outperform: Edelweiss

Edelweiss has come out with a report titled Techolution - The Cloud Fission. In Speaking on the report to CNBC-TV18, Sandip Agarwal of Edelweiss Securities said he expected the current upcycle for the sector to last for five years. Also, margins of leading IT companies will improve and currency fluctuations will not hurt earnings much, he said.

Edelweiss has come out with a report titled Techolution - The Cloud Fission. In Speaking on the report to CNBC-TV18, Sandip Agarwal of Edelweiss Securities said he expected the current upcycle for the sector to last for five years. Also, margins of leading IT companies will improve and currency fluctuations will not hurt earnings much, he said.
“In this report, we have tried to explain few simple things – the cycle is a very long run five-year cycle. We have given the exact calculation why the Indian IT industry revenues will double in next five years, which implies 16-17 percent growth. Also, we have also tried to explain that margins will still improve from here. So I am not too much bothered about the currency, I would still say that we will have a very strong earnings growth for next three-five years. It is not a one-two quarter cycle, it is a very strong and long upcycle,” he said.
“Hyper scalers are selling the cloud subscription but there has to be people who will do the whole cycle of transitioning to the cloud and start the day-to-day operation. This is a four-five year period, some enterprises will be able to do it in 12-14 months, it will run simultaneously with the existing work which is going on. So I think there is complete life cycle of cloud which comes into play,” Agarwal said.
“We have to remember that in the world, there are only 10-12 players who can do this work at a scale, which include Tata Consultancy Services (TCS), Infosys, HCL Technologies, Accenture and IBM. This is a very big market size with very few players and that is the reason I am so optimistic on this cycle of cloud and the hyper scalers,” Agarwal said.
He believes if IT industry is going to grow at 16-17 percent, TCS, Infosys can outgrow that with better margins.
For full interview, watch the video…