Nifty IT Hits Three-Month High After Accenture Q3 Results

The Nifty IT extended its rally for the fourth consecutive session on Friday to hit its highest level in three months. The gauge rallied after information technology multinational Accenture Plc.'s third quarter results showed that its generative artificial intelligence deals gained steam.

All constituents of the index rose, with Persistent Systems Ltd. leading gains with 5.23% intraday jump. Shares of LTIMindtree Ltd. and Coforge Ltd. also rose 4.38% and 3.84%, respectively.

The index has gained 3.7% in its four-day rally to hit its three-month high of 35,875.30 points.

Accenture's third-quarter revenue fell 1% year-on-year to $16.5 billion, according to an exchange filing. Its guidance has been narrowed from 1-3% predicted last quarter to 1.5-2.5% for the year ended August 2024. Accenture follows the September–August fiscal.

However, the company's generative AI new bookings stood at over $900 million for a total of $2 billion year-to-date. This signals that Indian IT firms, too, could gain from Gen AI deals, even as their capabilities aren't on par with Accenture. So far, only Tata Consultancy Services Ltd. has quantitatively indicated its Gen AI deal win.

Despite this, analysts are only positive on the sector from a long-term perspective. Aditya Shah, founder of Hercules Advisors, expects a correction, as there are expectations of only one rate cut this year. This policy stance can continue to weigh on discretionary spending in foreign markets, which account for a lion's share of Indian IT players' business.

However, long-term investors can benefit, according to him. Kush Bohra, founder of Kushbohra.Com, recommends short selling Wipro Ltd. and HCL Technologies Ltd. as the sector is still not out of the woods, according to him.

Nomura also said that discretionary demand is unlikely to recover meaningfully in FY25 for Indian IT and it maintained its cautious stance.

While strong bookings throw positive impact on Indian IT, the demand does not appear to be improved, said Kotak Institutional Equities. Slowdown in discretionary spends and emphasis on cost takeout deals continue. Japan and consulting, which were good for Accenture, are not relevant for Indian IT, it said.

Nomura has a 'buy' on Cognizant Technology Solutions Corp., Tech Mahindra Ltd., Coforge, Birlasoft Ltd. and eClerx Services Ltd. It has a 'reduce' on TCS, Wipro, LTIMindtree, LTTS and Mphasis Ltd.