IT stocks in India saw a notable uptick as major players like Infosys, TCS, HCL Tech, Tech Mahindra, and Wipro gained 2-3% in early trading on June 21. This rise followed the announcement of Accenture’s Q3 results, which injected a sense of optimism into the sector. The Nifty IT index surged nearly 3%, lifting the broader Nifty 50, which rose by about 0.4% to a new record high of 23,667.
Accenture, a global IT giant, reported revenues of $16.5 billion for its May quarter. This reflected a slight decrease in US dollars but a 1.4% increase in local currency. Despite the overall mixed results, Accenture’s performance is often seen as a bellwether for the Indian IT sector, given its significant influence and the similarity in service offerings.
The company’s maintained FY2024 guidance at the midpoint of 2%, with nearly 3% attributed to inorganic growth, indicating some positive aspects like strong booking growth and an acceleration in year-on-year growth rates. This news was enough to boost the morale of investors and stakeholders in the Indian IT industry.
The Indian IT sector has been under significant pressure over the past two years. After experiencing a boom during the Covid-19 pandemic, the sector struggled with a muted demand environment. Despite this, the Nifty IT index has gained about 30% in the last two years, although it lagged behind the Nifty 50’s 54% rise. However, over the past year, the performance gap has narrowed. The Nifty IT index is up 21%, while the Nifty 50 has risen 25%.
Several stocks have shown impressive gains over the last year. Persistent Systems, for example, has surged by 57%. Other notable performers include Mphasis (up 29%), Wipro (up 28%), Tech Mahindra (26%), HCL Tech (24%), and L&T Tech (23%). On the other hand, some major players like TCS, Coforge, Infosys, and LTIMindtree have underperformed the IT index, with gains of 17%, 17%, 16%, and 0.6%, respectively.
Kotak Institutional Equities noted that despite a challenging demand environment, the Indian IT stocks have remained resilient. They pointed out that Accenture’s results included several positive elements, such as strong bookings and growth acceleration, which could spur excitement among Indian IT stocks. This sentiment was echoed by Emkay Global Financial Services, which highlighted Accenture’s Q4 guidance of 2-6% growth in local currency as a sign of stability. They expect a full-fledged recovery by FY25/FY26, driven by potential interest rate cuts and improved macroeconomic stability.
However, the outlook for the sector remains uncertain. According to brokerage firm Nirmal Bang, demand conditions have not improved significantly. Discretionary spending continues to be under pressure, and decision-making remains slow. They observed that Accenture had revised its revenue growth guidance for FY24 downward, which reflects ongoing challenges in the market.
Nirmal Bang remains cautious about the prospects for the IT sector, suggesting that it is too early to declare a turnaround. They maintain an ‘underweight’ stance on the Indian IT services sector, anticipating that the ‘slower for longer’ phenomenon could lead to further downward revisions in revenue and earnings for FY25 and possibly FY26.
While Accenture’s Q3 results have provided a temporary boost to Indian IT stocks, the sector’s outlook remains clouded by uncertainties. Positive signs such as strong bookings and potential demand revival are tempered by ongoing challenges, including slow decision-making and competitive pricing pressures. Investors and stakeholders will be closely watching broader economic trends and client spending patterns to gauge the future trajectory of the sector.
