Global IT giant Accenture announced its quarterly earnings and FY25 guidance on Thursday and brokerage firms see them majorly positive. A few analysts believe that the growth passing macro headwinds will appear from CY2, while outsourcing bookings bode well for the Indian IT sector as well.
Brokerage firms believe that Indian IT companies including all bluechips, largecaps and midcap stocks shall remain in focus after Accenture's earnings and ahead of India's Q2 earnings coming in from October 10, 2024. Also, the falling interest rates shall also support the stock prices for the IT counters.
Accenture delivered in-line Q4FY24 results. Revenue at $16.4 billion grew 2.6 per cent YoY/5 per cent CC YoY, in line with Street’s estimate. Outsourcing services expanded 4.6 per cent YoY with consulting finally returning to growth. Overall bookings grew a solid 21.1 per cent YoY to $20.1 billion with Outsourcing bookings at $11.6 billion, surging 41.5 per cent YoY, said Nuvama Institutional Equities.
"Accenture expects FY25 revenue growth to be 3-6 per cent, including 3 per cent inorganic contribution. Consulting has resumed growth after six consecutive quarters of YoY decline while Outsourcing continues to sustain growth. Management highlighted Digital transformation and Gen AI shall drive growth," it added.
Indian IT majors including Tata Consultancy Services (TCS), Wipro, Infosys, HCL Technologies and LTIMindTree shall remain in focus during the day. However, LTI MindTree Ltd will exit from Nifty50 in today's rejig. It shall be replaced by Bharat Electronics Ltd (BEL).
FY25 outlook improved as it is seeing early green shoots from client spending. Improved commentary is backed by strong order book momentum with $81.2 billion in bookings for FY24. With the conversion of large transformational deals from the past 18-24 months, it expects continued broad-based growth across all verticals, said Nirmal Bang Institutional Equities.
On the demand environment nothing much changed from Q3 to Q4FY24. FY25 outlook looks positive with client spending to pick up from Q2FY25 onwards. As one rate cut has already happened, and US elections will be over by December 24, clients will roll out fresh IT budgets with more certainty and resume spending. Pick up in organic revenue and consulting business backs this, it said.
"Accenture sounded optimistic in its commentary which augurs well for the global IT industry as well as the Indian IT services sector which will be announcing results from October 10 onwards. It has highlighted some positive pockets which are Gen AI, cloud, cybersecurity and digital transformation," it Nirmal Bang added.
Midcap and smallcap IT counters including Cyient, Coforge, Sonata Software, Mphasis, Newgen Software, Birlasoft shall also be focus today.
The strong growth seen across both Outsourcing and Consulting business and the increased focus of enterprises on building digital cores to drive productivity and growth through generative AI, indicates promising opportunities for service providers in the medium to long term, said Antique Stock Broking.
"Accenture's strong employee addition during the quarter indicates pick-up in demand, providing medium term growth visibility for the Indian IT services companies. Overall, strong deal bookings and higher growth guidance bodes well for the Indian IT companies," it added, picking HCL Technologies and Mphasis as its top IT bets.
Motilal Oswal believes that the guidance, deal bookings, and the overall commentary have turned the corner, which bodes well for the sector. "This corroborates our views in our recent report in which we argue that client spend behavior is changing for the better, and we could see a return of modernization and discretionary spends going forward, albeit in some pockets, it said.
It had recently upgrades reflectings its expectations of growth in pockets such as US banking, healthcare and manufacturing as well as a gradual recovery in data, ERP and mainframe modernization projects, added the brokerage firm.