Indian IT Stocks Rise as Accenture's Strong Earnings Fuel Optimism

Indian IT stocks gained momentum on December 20, buoyed by Accenture's better-than-expected quarterly earnings and upgraded revenue guidance. Accenture's impressive first-quarter performance boosted investor sentiment, lifting American Depository Receipts (ADRs) of Infosys and Wipro by 2-3% overnight on the NYSE. This optimism spilled over into the Indian markets, with Tata Consultancy Services (TCS) leading the rally with a 2% surge in early trade.

Accenture's Stellar Performance Ignites Hope

Accenture, the world's largest IT services firm, reported first-quarter revenue of $17.7 billion, beating analysts' estimates of $17.12 billion, according to data from LSEG. The company's revenue growth was broad-based, spanning multiple markets and industries. Accenture also reported an operating margin of 16.7%, a 90 basis points increase year-on-year and a sequential rise of 167 basis points.

This robust performance led Accenture to revise its full-year revenue growth outlook to 4-7%, up from its earlier projection of 3-6%. The strong earnings signal potential opportunities for Indian IT firms, which often follow trends set by global players like Accenture.

Indian IT Stocks React Positively

The positive outlook from Accenture drove gains across major Indian IT stocks. TCS emerged as the top gainer on the Nifty, climbing nearly 2%. Other IT stocks also registered gains, with Mphasis, Persistent Systems, L&T Technology Services, and Coforge rising between 0.3% and 1%. The Nifty IT index, tracking these stocks, was up 0.5% during early trade, reflecting renewed optimism in the sector.

Infosys and Wipro, whose ADRs had surged overnight, also benefited from the upbeat sentiment. Investors interpreted Accenture's performance and guidance as a sign that Indian IT companies could experience a similar growth trajectory in the coming quarters.

Brokerage Views on the Sector

International brokerage firms were quick to weigh in on the implications of Accenture's earnings for Indian IT companies.

Jefferies viewed Accenture's strong Q1 revenue as a result of faster deal ramp-ups and broad-based growth. The brokerage identified Infosys, TCS, and Coforge as its top picks in the Indian IT sector. While Jefferies noted Accenture's cautious tone on discretionary spending and soft deal bookings, it highlighted the firm's net hiring and declining utilization rates as positive indicators for revenue visibility.

Nuvama also echoed a positive sentiment, stating that Accenture's upgraded guidance, driven by faster deal execution, bodes well for Indian IT services. The brokerage firm maintained a favorable stance on the sector.

On the other hand, Morgan Stanley took a more tempered approach. While acknowledging that Accenture's results could support Indian IT stocks, it noted that the demand environment and 2025 IT budget clarity remain uncertain.

CLSA offered a more cautious view, expressing concerns over weak order books for Indian IT vendors over the last two quarters. The brokerage warned about increasing competition from Accenture and limited room for guidance upgrades for firms like Infosys and HCL Tech. CLSA prefers Persistent Systems, Tech Mahindra, and Wipro, while maintaining an 'underperform' rating on LTIMindtree.

Conclusion

Accenture's strong quarterly performance has injected fresh optimism into the Indian IT sector, prompting gains in key stocks like TCS, Infosys, and Wipro. While global cues suggest potential growth opportunities, cautious voices warn of ongoing challenges such as competition, discretionary spending pressure, and unclear demand trends. Despite mixed views, the overall sentiment remains cautiously optimistic, with investors keeping a close watch on future earnings reports and deal flows in the Indian IT industry.