Most Brokerages Positive On Indian IT After Accenture Results But Citi Remains Cautious

Most brokerages see improvement in discretionary demand scenario for Indian IT companies after Accenture's first quarter results came in line with analysts' estimates and as it raised its revenue guidance for fiscal 2025.

However, Citi Research's view remains that a gradual and uneven recovery is underway. "We remain cautious as NSEIT is trading at 31 times FY26 consensus EPS – relative preference for Infosys/HCLT (Neutral rated) over other stocks," it said while noting most Indian IT Services companies are seeing pickup in US financial services, while manufacturing remains soft (particularly autos).

The IT services company's revenue grew 9% in dollar terms to $17.7 billion, which was in line with the Bloomberg estimates. The company also said it sees full-year revenue growth in the range of 4% to 7% in local currency, compared to its previous forecast of 3% to 6%.

A BofA securities report said that the company's first quarter print was materially better than anticipated and should be a meaningful positive catalyst for shares. "We were also impressed with Consulting bookings of $9.2 billion, slightly ahead of consensus," it said.

Citing Accenture, Nomura said that it is seeing more of the same in terms of demand environment, with clients continuing to prioritise spending on large-scale transformation projects (indicated in record managed services billings).

The company also said that the bottom- and top-end of its guidance band assume a deterioration and no change in discretionary demand, respectively, in FY25 estimates (vs FY24).

The brokerage said that while a strong recovery of discretionary demand may take a few quarters, it is unlikely to worsen further, in its view.

"We expect revenue growth for our covered large-caps to improve in FY26 (+7.6% y-y) vs FY25F (+3.8% y-y)," it said. "Onset of the interest rate cut cycle from Sep 2024 and a potential thaw in decision-making by US corporates post US elections in Nov 2024 could provide a fillip to demand, in our view."

The brokerage has a 'buy' rating on Infosys, Wipro and Cognizant Technology in large-caps; and a 'reduce' rating on LTIMindtree, Mphasis and L&T Technology Services.

According to Nuvama, Accenture's guidance upgrade is due to faster-than-expected execution of the deals won earlier and improvement in outsourcing growth is positive for the Indian IT services sector. "We maintain positive stance on the sector, and expect a sustainable strong demand environment, along with opportunities from Gen AI, to drive healthy earnings growth over the next three years," it said.