Infosys, HCL Tech, TCS Shares Rise As Accenture Earnings Fuel Optimism

The Nifty IT Index jumped to a record high as analysts expect Accenture Plc’s above-estimated first-quarter results, healthy deal pipeline and improving demand outlook to bode well for India’s technology companies.

The 10-stock gauge rose as much as 2.25% in Friday’s early trade to 23,408. Nine of the 10 stocks have gained, and Infosys Ltd., HCL Technologies Ltd., Tata Consultancy Services Ltd. and Wipro Ltd. are among the top five gainers on the Nifty 50 index.

Accenture—which follows September-August fiscal—has also raised its revenue growth guidance for FY21 to 4-6% from 2-5% earlier. The company reported a 4% year-on-year growth in revenue in U.S. dollar terms in the quarter ended November to $11.8 billion. That’s $200 million higher than its guided range.

Its operating income rose 7% to $1.89 billion, with operating margin of 16.1%, an expansion of 50 basis points. The company’s new bookings rose 25% over the year earlier to $12.9 billion in the reported quarter. The overall growth for Accenture was led by its health and public services, outsourcing and financial services segment.

Accenture, while announcing its fourth-quarter results, had indicated the disruption from the Covid-19 pandemic to last longer even as demand for digital services rises. It, however, expected to return to its pre-Covid-19 growth rates—single digits or low double digits—in the second half of fiscal 2021.

Here’s what analysts had to say...

Morgan Stanley

• Accenture’s revenue was above expectations with improved growth rates

• FY21 revenue growth guidance raise is a function of stronger-than-expected trends seen so far in the first half

• Strong deal wins and constructive management commentary bode well for Indian IT vendors

• Commentary similar to Indian IT vendors who spoke of faster conversion on smaller sized deals

• Healthcare has done well for companies like TCS.

• Indian IT vendors, too, have seen improving attrition but one has to watch out for this trend as the economy opens up

Nomura

• Accenture results were materially ahead of expectations

• Traction in outsourcing continues to be strong, which is more relevant for Indian IT

• Pressures are abating at stressed verticals

• Sees a positive read-across for Indian IT

Jefferies

• Accenture sees broad-based recovery across verticals and markets

• Demand outlook remains strong with acceleration in cloud and digital transformation

• Cloud, security and digital transformation are key medium-term growth drivers

• Tier-I Indian IT firms are favourably placed to leverage these growth opportunities

• Continues to like the sector with Infosys Ltd. as top pick

Credit Suisse

• Accenture’s revenue was ahead of guided range

• Revenue growth and strong bookings pick-up reflective of demand

• Preferred picks: Infosys and HCL Technologies

• Likes Infosys on expectations of its industry-leading revenue

• Likes HCL Technologies due to its attractive valuation

Emkay

• Accenture’s Q1 results and guidance were well ahead of expectations

• Broad-based demand recovery and sustained healthy growth momentum in revenue/order booking of the outsourcing business augurs well for Indian IT

• Sustained acceleration in revenue growth will support high valuations despite rally

• Prefers Infosys, HCL Technologies and Tech Mahindra Ltd. among tier-1 companies

Prabhudas Lilladher

• Accenture results show demand environment remains intact

• Strong acceleration in cloud adoption

• Post run-up Indian IT valuations may appear rich compared to long-term historical average

• Believes valuations are still reasonable due to entering into technology upcycle, prolonged low interest rate environment, strong order book and deal pipeline

• Continues to remain bullish on the sector

• Top large-cap picks: Infosys, HCL Technologies, TCS

• Top tier-2 picks: Coforge Ltd., L&T Infotech Ltd., Mindtree Ltd. and Mphasis Ltd.