Infosys, Wipro, TechM, TCS: IT stocks in focus as Accenture shares yearly guidance. Analyst views

Shares of tier I IT firms such as Infosys Ltd, Wipro Ltd, Tata Consultancy Services Ltd (TCS), Tech Mahindra Ltd (TechM) and HCL Technologies Ltd (HCL Tech) will be in focus on Friday morning after a tepid set of Q4 results from Accenture and its muted FY24 guidance sent American depository receipts (ADRs) of Infosys and Wipro falling overnight. Weak CMT performance dragged revenue growth, as Accenture suggested FY24 revenue growth guidance of 2-5 per cent. Analysts said the demand environment stays challenging, citing a conservative guidance by the management, considering weak discretionary spending and slower decision-making.

Emkay Global noted that the revenue was at the mid-point of the guidance for the second consecutive quarter. It said the consensus FY25 growth estimates currently build in a gradual improvement in demand and, thus, carry risks if macro weakness persists.

“We believe recovery in technology spending is a matter of time but requires some stability returning in macro conditions. Nifty IT Index has outperformed the broader markets by 3 per cent/8 per cent in the last 1 month/3 months on account of expectations of anticipated gradual recovery in demand," Emkay Global said. Its pecking order is Infosys, HCL Tech, Wipro, LTIMindtree, TechM, and TCS among Tier-I companies," Emkay Global said.

Motilal Oswal said the management highlighted CMT and North America as the key weak areas, which it sees as negative for Tech Mahindra (40 per cent Communication exposure).

In its view, Accenture's commentary implies near-term weakness for Indian IT companies.

"While ACN’s guidance is broadly in line with our expectation of a growth pickup for its Indian IT peers in FY25, its 4Q performance and 1QFY24 outlook would add to concerns over the near-term demand environment. Additionally, 4Q deal booking declined 3 per cent QoQ against company guidance of flat growth, implying lower visibility on demand in the current environment," it said.

A few analysts feel that Accenture's numbers and guidance need to be looked at ex-Consulting for a read-across for the Indian IT Services companies. On that front, they said revenue growth, order bookings and next 12 months’ guidance are all encouraging.

Nuvama Institutional Equities said while Accenture's guidance of 2–5 per cent CC YoY for FY24 was modest, outsourcing is expected to be strong yet again (mid-to-high single-digit growth). It said Consulting is expected to drag.  Stable bookings along with a decent guidance for Outsourcing bode well for Indian IT services companies, it said.

"We expect large-cap Indian IT companies to report low-to-mid single-digit YoY growth in H2FY24, gradually moving up to a high single-digit in 1HFY25—which would broadly lead to the same growth as ACN would report in FY24 (August-ending FY).

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