IT Sector Outlook: Analysts Have Chalk And Cheese Views On Tech Stocks After Accenture Results
The domestic IT sector has received chalk and cheese takes from analysts due to uncertainties in the US discretionary spends.
Accenture Plc on Thursday increased its lower-end forecast for earnings per share and revenue for fiscal 2025. The information technology company now expects its EPS to be in the range of $12.55 to $12.79 per share for fiscal 2025 as opposed to its previous expectations of $12.43 to $12.79. This, according to HSBC, signals a neutral to positive signal for the Indian IT sector. While, according to Nomura, the numbers ring a caution bell on US federal contracts and rising uncertainties.
The domestic IT sector has received chalk and cheese takes from analysts due to uncertainties in the US discretionary spends. Limited exposure to US federal contracts alone provides a slim cushion for the domestic IT sector and brokerages flag trouble ahead for the big names, calling for a cautious approach. CLSA, however, takes the opposite view by remaining optimistic based on the stable pricing and budgets.
Difficult To Outperform Markets
While Accenture's projected growth for the next two quarters suggests a slight moderation, it does not imply a decline in demand.
Despite ongoing uncertainty in discretionary spending, HSBC notes, that the management has not observed further deterioration recently.
The brokerage does note the 18% correction in Indian IT stocks from their 2025 peak due to US market slowdown.
Although the velocity in the sector remains stable, HSBC flags a possible pause in flow business, particularly in retail. HSBC said that it will be difficult for the IT sector to outperform the market in 2025.
Err On The Side Of Caution
Taking a 'proceed with caution' stance on the sector, Citi is citing the heightened uncertainty in the global economy and geopolitics.
The brokerage notes that the Indian IT has limited exposure to the negative impact on the US Federal business. It also noted that competition intensity could increase in other segments and that margin improvement is in a competitive environment.
Citi continues to pick HCL Tech and Infosys over peers in the large-cap space and Mphasis in the mid-cap space.
Growth Likely To Bottom Out
Nomura notes that unlike Accenture, Indian IT companies do not have any exposure to US federal government contracts. Despite this, the brokerage flags a rocky road ahead.
Nomura notes that the risk of clients turning cautious on IT spends due to rising macro uncertainty could increase in the near term. The brokerage said that the sector has tough times ahead as growth is likely to bottom out in financial year 2025 for Indian IT companies.
While a strong recovery of discretionary demand may take a few quarters, it is unlikely to worsen, according to the analyst. Macro risks have increased, but absence of exposure to US federal government contracts puts Indian IT companies in a better situation, according to Nomura.
Poles Apart And Positive
Taking a view that's poles apart from the rest, CLSA highlighted that the cutbacks in the US do not pose as headwinds for the domestic IT sector.
CLSA notes that 8% of Accenture's overall revenue comes from US public services, which are seeing significant cutbacks. Thus, this headwind is not present for Indian IT companies. The brokerage retains an optimistic stand on the Indian IT sector.
Analysts flag possible cuts in near-term revenue growth but said that this will be offset by the currency depreciation to a certain extent.
CLSA reiterates its 'outperform' rating on TCS, Infosys, Wipro and Tech Mahindra. This is on the back of the continued improvement in the BFSI, while its stance on Accenture is based on communications, media and technology verticals.
