Shares of IT companies in India were in demand in early deal on Monday, following strong results by Accenture (ACN) last week. However, most IT stocks surrendered the gains to end weak, tracking the broad market trend.
Analysts remain bullish on the Indian IT space and expect domestic top companies such as Infosys, Tata Consultancy Services, Wipro, Tech Mahindra and HCL Technologies to deliver strong numbers like Accenture.
On Thursday, the Ireland-headquartered Accenture recorded a 28 per cent y-o-y increase in total revenue at $15 billion for the quarter ended February, basis in terms of constant currency and 24 per cent rise in dollar terms. It also revised its annual guidance upwards to 24-26 per cent from the earlier 19-22 per cent.
"Accenture's market-beating results and excellent guidance augur well for IT stocks," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Strong demand environment
According to Emkay Global, Accenture's strong revenue beat and upward revision in revenue growth guidance for FY22 (about $2 billion increase) indicate a robust demand environment. "Broad-based healthy demand, strong revenue growth (20 per cent YoY in H1) and healthy order booking in outsourcing (12.5 per cent YoY in H1 on the back of 21 per cent in FY21) augur well for Indian IT peers," it added.
Motilal Oswal Financial Services said: "ACN’s commentary reinforces our view that the demand environment continues to remain strong and is sustainable in the long run. Further, upgrade in FY22 guidance provides visibility to the Indian IT services sector’s growth momentum."
While supply-side challenges remain a point of concern, ACN’s margin guidance (marginal cut of 10 bps) implies stable margin performance in FY23, it added.
We maintain our positive stance on the sector as we expect sustained growth with stable margins. However, JM FInancial said, “We continue to see limited read through from Accenture’s Q2-FY22 results. We have been more constructive on the ability of Indian techs to defend margins through the past 12 months, but finally see some reasons to be cautious due to the likelihood of elevated talent-side pressures (both onsite and offshore, further exacerbated by the Ukraine crisis), likely rebound in travel expenses in H1-FY23 itself and with global macro turmoil, the risks of slowdown in near-term project-client decision making.”
While JM Financial perfers HCL Technologies, Infosys and Tech Mahindra, Motilal Oswal picks Infosys, HCL and TCS.
While shares of Infy and Wipro closed flat, TCS and HCL Tech fell 1.44 per cent and 2.5 per cent respectively.