Shares of information technology (IT) companies including Infosys, Tech Mahindra and Wipro rallied up to nearly 2 percent in early trade on Monday after brokerages largely maintained positive view on the sector.
Following Accenture’s stellar Q2 result, brokerages came out with positive views on the Indian tech sector citing strong demand environment.
Ireland headquartered Accenture recorded total revenue at $15 billion for the quarter ended February, which is an increase of 28 percent on a year-on-year (YoY) basis in terms of constant currency and 24 percent YoY in dollar terms. It also revised its annual guidance upwards to 24-26 percent from the earlier 19-22 percent.
Brokerages read Accenture Q2 earnings as positive for Indian IT stocks, which were the only ones (sector-wise) to end in the red on Thursday.
The sectoral gauge Nifty IT jumped more than a percent with all 10 stocks in the pack in the green.
At 9:45 am, Infosys shares were up 1.17 percent, trading at Rs 1,876.35 on the National Stock Exchange (NSE). Wipro was trading 1.6 percent higher at Rs 611.15, whereas Tech Mahindra was up 1.14 percent at Rs 1,510.50. Shares of Tata Consultancy Services (TCS) were up 0.42 percent at Rs 3,688.20.
According to market expert Prakash Diwan, Accenture numbers are very positive for all Indian IT names as well, especially the larger ones, but there's no surprise here.
"At the start of the calendar year 2022, there was a bit of hesitation on part of a few clients to start writing cheques on newer projects on long-term contracts that were being issued," he said in an interview with CNBC-TV18.
“Most of the numbers probably didn’t anticipate that kind of a large contract win. But that seems like in the offing. Barring the interest rate hike and the Ukraine-Russia crisis, I think there's nothing upsetting the focus on IT spent going up,” he explained.
He sees IT as a place to hide if things were to worsen from here.
“Large- cap names like TCS, Tech Mahindra and probably even HCL Tech and all shall benefit with some sort of allocation that will start increasing from the FII side as well,” said Diwan.
Global brokerage Morgan Stanley is of the view that guidance increase by Accenture for FY22 amid current volatility provides comfort.
As Goldman Sachs reads the Ireland company’s strong orderbook and upward revision in guidance as largely positive for Indian IT, the brokerage has reiterated its 'buy' rating on Infosys and TCS.
Kotak Institutional Equities, meanwhile, said the strong guidance indicates spending continues to be robust.
“(Accenture) Management provided positive commentary indicating healthy pipeline and strong spends in areas of digital, cloud, Web 3.0 and security. Several companies are in their early stages of cloud transformation initiatives with only 30% of workloads on cloud. Moreover, the data (once on the cloud) will open further opportunities for IT Services companies. This offers good visibility of sustained demand environment,” Motilal Oswal said in a statement.
Emkay Global Financial Services flagged that Accenture is facing some margin pressure due to wage inflation and elevated attrition amid tight labor markets. However, a conducive environment for price increases will support the margins, it said.
