TCS, HCL Tech, Infosys, and other IT stocks rally led by Accenture’s outsourcing strength

Indian IT stocks rally after Accenture earningsBCCL/BI India
  • The five large Indian IT services companies — Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, and Tech Mahindra — are trading in the green today.
  • The rally in their share price is on the back of Accenture’s fourth-quarter earnings announced last night.
  • The company recorded $14 billion in new deal wins, more than half of which came from the outsourcing segment.
  • Its growth in revenue was driven by the health and public services vertical.
Accenture’s latest earnings report strengthens the optimism for recovery in the Indian IT sector. And the rally in domestic IT stocks is a reflection of that. Tata Consultancy Services (TCS) is among the top movers in the market today.

Its Indian IT services peers — Infosys, Wipro, HCL Technologies and Tech Mahindra — India’s top 5 most valuable IT stocks are also glittering green on the back of Accenture’s earnings.

Company% change in share price
HCL Tech3.07%
Tech Mahindra1.82%
Source: BSE — Share price as of 9:50 am compared to previous day’s closing

The fourth-quarter results of the Global IT services company indicate that demand is set to return to the sector. “Strong order booking, driven by outsourcing, implies demand is on the path to normalisation and recovery,” said Motilal Oswal in its report dated September 25.

Accenture's order book:
New consulting orders$6.5 billion
New outsourcing orders$7.5 billion
Total new order value$14 billion
New large clients ($100 million plus)17

The traction seen in outsourcing and the focus on cloud, in particular, bodes well for the Indian IT industry. Of the $14 billion worth of bookings that Accenture had on its books during the fourth quarter, more than half was from outsourcing.

As of Q4, 70% of the company’s revenue was coming from businesses like digital, cloud and security — areas where Indian companies have also been doubling down.

“The shift to cloud helps build a foundation for digital transformation and deflates costs which can be reinvested by enterprises to fund their digital transformation initiatives,” said Japanese brokerage Nomura.

Healthcare — the diamond in the rough
The biggest growth driver for Accenture is health and public services. However, that particular vertical is unlikely to benefit Indian IT service companies the same way. Most of them have relatively low exposure to healthcare.

VerticalQuarterly growth by Accenture
Health and public service3.2%
Communications, media and technology-1.3%
Financial services-3.3%

Nonetheless, TCS — recently having breached the ₹900 lakh crore valuation — is the only Indian IT services giant who’s healthcare market share is greater than its take of the manufacturing market.

TCS share in the healthcare marketGartner

Accenture’s revenue in the three months ended August fell 2% over the previous quarter to $10.84 billion.

For the next fiscal year, the company expects operating margin to be in the range of 14.8% to 15.0%, an expansion of 10 to 30 basis points over the previous year.

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