We are in beginning phase of a disruption in the IT industry: Sandip Agarwal

"I think Accenture numbers were broadly in line, but I think the disruptive generative AI technology is taking on the industry now," says Sandip Agarwal, Independent Market Expert.

How would you read the numbers of Accenture and the impact on the companies back home?
I think Accenture numbers were broadly in line, but I think the disruptive generative AI technology is taking on the industry now. And whenever new disruption happens in the industry, then initially clients generally become cautious and they cut down the portions which they have allocated for the discretionary spends while they continue to do the transformative and large projects.

So, we have seen same thing happening in Accenture for the last two-three quarters and their commentary yesterday was also in similar lines that clients are cutting down the small deals because those are the ones which are short term and which are primarily discretionary and could be probably immediate and avoided if there is a confusion or if there is a cautiousness.


But the large transformation deals are the ones which are continuing on a strong note and they are doing well. In my view, we are in beginning phase of again a disruption in the industry and due to that we may see one or two quarter of slight weakness, although this time the good part is that stocks have corrected much ahead of the disruption setting in so the stocks are not at all expensive or at high valuation. So, maybe we can see a time correction, but not much price correction that is the way I will put.

But do not you think it is priced in mostly with respect to the headwinds that we are seeing? BFSI was at least up around 5% though North America was a bit slow. Do you think it is priced in all the negatives?
I think that a large part of the things are already in the price, but still when there is a guidance cut kind of situation or something, then there could be a small cautiousness, small time correction which can happen and also while most of the large companies have already announced partnership with Google, Microsoft for charge ChatGPT and others, all the generative AI platforms, but still I think there would be some cautiousness that how long it may take while full-fledged revenue set in and will there be a big disruption?

So, there are a lot of questions right now, there is no clear answer to them and because of that there could be some time correction I would say, price correction in the stock most of it has already happened in my view.

Any stock that you think will be able to weather the storm better with respect to the takeaways that are coming in? CMT was down, so should be a headwind for Tech Mahindra but then valuations are quite supportive for the likes of HCL Tech. What is your stock specific analysis at this point of time?
I think right now is the time when you should play value rather than high growth because growth is addition of small deals and large deals both. So, small deals if the clients become cautious for even one quarter, then the high growth stocks or where the multiples are high because of the high growth, those stocks can take a hit so it is best to be in the stocks which are doing good on the new technology, who are investing but where the growth expectations are not very high and the multiples are not very high.

For example, as you rightly mentioned, HCL Tech, Tech Mahindra, these are the names which have corrected quite a bit and they are not expensive and the downside risk maybe very limited and they are all capable of building their own capabilities.

It takes two to three quarters to build those capabilities and to supply manpower again to the client for in the new technology areas.

So, I would say that it is a time to be more on the value play rather than very high growth play. Secondly, the other theme which can do well is the R&D piece, the product engineering side.

So, in product engineering side, I think some of the players, some of the companies which have come to little reasonable valuation, they could be looked at. But unfortunately, it has not corrected as much as the IT services have. So, in case of product engineering, you have to be very choosy what you are buying.