What lies ahead for Indian IT companies after Accenture's Q1 results

The Indian information and Technology (IT) companies are likely to report better results in the coming quarters.

Global IT company Accenture released its September-November quarter results on December 16, 2022. It reported 15 per cent growth in constant currency terms during the quarter, above the guided range of 10-14 per cent. The growth was mainly led by managed services which grew 20 per cent in the quarter under review.

Despite better-than-expected numbers by Accenture, shares of the Indian IT companies were trading in the red on Monday. The pressure in IT stocks could be attributed to weak commentary from Accenture. Nifty IT index settled 0.51 per cent lower.

On Monday, IT heavyweights such as TCS, Infosys, Wipro, and HCL Tech were each down between 0.5-1.5 per cent on the NSE. Tier II IT companies like Coforge, Persistent, and L&T Technology Services were also down in the range of 0.5-2 per cent on the NSE.

According to Zee Business channel research, there could be a possible impact on growth of Indian IT companies in the financial year 2023-24 (FY24) wherein big IT companies may have an upper hand in terms of growth as compared to small-medium IT firms.

Similarly, global brokerage firm Nomura maintained a cautious stance on the demand outlook in the overall IT sector. The brokerage said that it expects the attrition rate to fall significantly for Indian IT companies over next few quarters. It picked Infosys in large cap and Persistent in mid-cap as top picks.

According to Kotak Securities, Accenture’s guidance range remained unchanged despite 1 per cent revenue outperformance at the upper end of the guidance range (10-15%) in the quarter, indicating some level of caution, adding that the attrition rates may drop considerably in the coming quarters.

The IT stocks have corrected in the past 6 months on the back of risks to margins, a slowdown in growth rates, and an increase in the interest rate environment. The brokerage expects margins to increase in the subsequent year and believe that a slowdown in growth rates is also baked into stock prices.

“We expect growth rates of 5-8 per cent in FY24E, down from 11-16 per cent in FY23E for Tier 1. A deeper recession has implications on multiples and is not fully priced in. On risk:reward framework, we find Infosys, HCLT, and Mphasis attractive and are our top picks,” Kotak Securities said in a report.

While another global brokerage CLSA sees Accenture Q1 earnings as a positive read-through for Indian IT companies. It picks Infosys, TCS, HCL Tech, and LTI Mindtree as the top bet in the sector.