IT stocks Tata Consultancy Services Ltd (TCS), HCL Technologies Ltd, Wipro Ltd, Tech Mahindra Ltd (TechM) and Infosys Ltd fell on Thursday, even as many other largecap stocks gained, following the US Fed rate cut. Analysts noted that the beginning of Fed rate cut cycle has in the past coincided with an initial slowdown in IT services exports. This is because the prior rate-cut cycles were preceded by a strong demand upcycle and saw slowing down of the US economy as the rates peaked and started reversing.
Stock investors would, therefore, keenly follow Accenture's Q4 results that are scheduled for September 26 Eastern Time to understand the demand trends for the IT sector.
"Accenture's result will provide some clarity on the near to medium term demand outlook for Indian IT companies. The BSEIT Index has rallied over 30 per cent since the last quarterly results, due to the positive commentary by Indian IT companies on demand recovery in the BFSI vertical and discretionary spending. We remain cautious with the current valuations and prefer large caps over mid-caps. Currently HCL Tech and Mphasis are our top picks," said Antique Stock Broking.
The brokerage said Accenture's annual guidance should provide some clarity on how technology spending trends will evolve in the upcoming quarters.
Bloomberg consensus suggests Accenture will provide revenue growth guidance of 4-7 per cent in constant currency (CC) terms, with a mean CC revenue growth of 5.75 per cent, and an inorganic contribution of approximately 3 per cent.
FY25 revenue growth will be driven by managed services (consensus estimate of 5.8 per cent), while consulting is expected to continue growing at a slower pace (4.3 per cent). Bookings are expected to remain stable, according to consensus, following nearly 10 per cent growth in FY24, Antique Stock Broking noted.
"Growth by vertical is anticipated to be led by health & public services, products, and resources, while communications, media, technology (CMT), and financial services are expected to grow at a slower pace. Growth guidance expected to be better for FY25," it said.
Antique Stock Broking noted that commentaries of most Indian IT companies in 1QFY25 highlighted some recovery in the near to medium term post the US Fed rate cuts.
"Also, they see a portion of the cost saved through cost optimization going towards cloud-led deals. Since a majority of the cost optimization efforts are completed, Indian IT companies expect their clients to refocus resources on modernizing systems and increase non-AI discretionary spending again," Antique noted.