IT stocks climb as Accenture’s commentary on strong demand bodes well for the sector

Mar 24, 2023


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​IT stocks rise on Accenture’s positive comments on demand outlook​

​Indian IT stocks – which have been battered by challenging macro conditions and the recent banking crisis in the US and Europe – found reason to cheer thanks to strong quarterly results and positive demand outlook commentary from technology services leader Accenture.​

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Nifty IT up 0.53 percent after days of continuous losses

On March 24, Nifty IT was up 0.53 percent led by gains in shares of Infosys, LTIMindtree, Tech Mahindra, Tata Consultancy Services (TCS) and Wipro. Nifty IT has tumbled more than 9 percent in the last one month. ​

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Accenture reports strong Q2 results

​This comes a day after Accenture reported revenue of $15.81 billion in Q2, beating its guidance of $15.2-$15.75 billion. However, it also slightly lowered its FY23 revenue guidance to a range of 8-10 percent from 8-11 percent earlier. ​

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Accenture plans to lay off 19,000 employees

​The IT giant is also planning to fire 19,000 employees, or 2.5 percent of its workforce, in the next 18 months. The impact on its Indian operations is not clear. Reports say Accenture has over 3 lakh employees in India. ​

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​IT stocks see a relief rally ​

Analysts at JM Financial said that the rise in IT stocks post Accenture’s mixed results is a relief rally post the correction in prices witnessed in the last one month. ​

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Analysts say Accenture’s results better than estimates

“Accenture’s Q2FY23 revenue growth and cut in guidance are both better than expectations,” said a report by Nuvama Institutional Equities. “Overall, Accenture’s Q2FY23 results bode well for Indian IT services companies given strong growth and bookings in the outsourcing business,” added the report. ​

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Demand commentary by Accenture indicates positive spending on technology

​“Accenture’s management commentary on demand indicates that spending on technology modernisation continues to hold, despite deteriorating macro—enterprises continue to pursue compressed transformation,” said Sumit Pokharna, research analyst and vice president at Kotak Securities.​

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Axis Securities has a ‘cautiously positive long-term outlook on the sector’

​“We maintain a cautiously positive long-term outlook on the sector, supported by strong investments in digital technologies, cloud transformation, IoT, as-a-service, and machine learning, which will accelerate revenue growth across verticals,” said a report by Axis Securities. ​

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The sector may face difficulties in the near term

​Analysts at Axis Securities say that due to the challenging macroeconomic events, the companies may face difficulty in execution and see delays in automation. “Moreover, the rising attrition rate would continue to remain a key concern which would delay the current automation projects further,” it said.​

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Strong dollar benefits IT companies

​The fact that the rupee had been volatile in the last one year while hitting several lows as the US dollar strengthened against major global currencies will benefit IT companies that earn a big chunk of their revenues in dollars. Rupee has tumbled 7.5 percent in the last one year. ​

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Weak rupee may offset high operating expenses of IT companies

​“On the bright side, a few tailwinds such as the weakening of the rupee may offset some of the higher operating expenses,” said a report by Axis Securities. ​

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