TCS, Infosys, other IT stocks rise after Accenture Q1 results; here is what analysts say

Accenture said it expects large digital transformation deals to materialise in its results in the "back half of our year". The company follows a September-August financial year.

IT stocks rose on Wednesday after Accenture maintained its full-year forecasts for growth in revenue as well as profit. | Representational image | Image source: Reuters

Tata Consultancy Services, Infosys, Wipro, and a bunch of other IT stocks rose on Wednesday—with the three contributing the most to a gain of more than one per cent in the Nifty IT index—after US-based IT services firm Accenture reported a 3.0 per cent increase in quarterly revenue and reiterated its fiscal 2024 forecasts for growth in revenue as well as profit.

At around 10 am, TCS shares were up 1.1 per cent at Rs 3,854 apiece on BSE, while Infosys was up 0.8 per cent at Rs 1,570 and Wipro up 1.8 per cent at Rs 446.5. The Nifty IT was holding on firmly to the green with a gain of 1.5 per cent, or 524.8 points, at 35,869.8, while the broader S&P BSE IT index, which includes almost all of the BSE-listed IT companies, was up 1.43 per cent, or 513 points, at 36,486.5.

Accenture said it expects large digital transformation deals to materialise in its results in the "back half of our year". The company follows a September-August financial year.

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Many analysts cautioned against the gains in Indian IT stocks as Accenture’s revenue growth forecast for its second quarter fell short of Wall Street estimates, anticipating cautious spending by clients as macroeconomic uncertainty remains an overhang.

Accenture maintained its growth forecast for 2023-24 at 2-5 per cent (local currency) with an operating margin (constant) of 14.8-15 per cent. According to Zee Business research, Accenture’s Q1 earnings were in line with its guidance.

The IT services provider’s Q2 guidance, however, fell short of Zee Business analysts’ expectations. Limited client spending by technology and media companies, owing to macroeconomic uncertainty, is expected to affect the company in the quarter ending February 2024 (Q2), according to the analysts.

Should IT investors on Dalal Street be worried?

Brokerage Nirmal Bang said the rally in Indian IT services stocks may be premature as the pack saw action despite Accenture's November quarter revenue being below estimates. The US-based IT services company also gave sluggish guidance for the second quarter (Q2FY24), the brokerage pointed out.

"We continued to see lower discretionary spend, which impacts our consulting type of work," Accenture's CEO Julie Sweet told analysts in an earnings call. She also said that if one looks around the environment, there are not a lot of green shoots on the economic side.

What does Accenture's performance mean for Indian IT stocks?

According to Nirmal Bang, the weak guidance for 2QFY24 (hinting at a quarter-on-quarter decline in revenue) could mean a weak 3QFY24 for most Indian IT companies largely due to higher furloughs and fewer working days.

In October, TCS, the country's largest IT company, reported weaker-than-expected quarterly results while Infosys lowered the upper end of its annual revenue forecast, as clients were still hesitant to spend on discretionary projects.

Both Indian companies are Accenture's competitors in the outsourcing business.

Why bother about Accenture?

Accenture is a behemoth in the consulting and IT services space that has been consistently gaining market share.

Following Accenture is critical to understanding the offshore IT industry business dynamics because 75 per cent of its workforce (as of 1QFY24) is based in the global delivery network (low-cost locations like India, Philippines, etc).

"Managed Services (outsourcing) accounts for a huge part of its revenue, where we believe it is up directly in competition with India-centric IT players like TCS, Cognizant Technology Solutions or CTS, Infosys, Wipro, HCL Technologies, Tech Mahindra, etc," analysts at Nirmal Bang wrote in a research report.

How IT stocks have performed in 2023

In 2023 so far, the Nifty IT and the S&P BSE IT indices have gained over 24 per cent and over 26 per cent, respectively, as against an 18 per cent rise in the headline Nifty50 index.

(With inputs from agencies)

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