Indian IT Stocks Rise As Brokerages Cheer Accenture’s Q2 Performance

Shares of Indian technology companies recovered from their opening lows and gained after Accenture Plc. reported improved earnings for the second quarter.

The company—which follows the September-August fiscal—raised its FY21 revenue growth guidance to 6.5-8.5% from 4-6% previously. Revenue rose 8% year-on-year in U.S. dollar terms and 5% in local currency terms, according to a company statement.

The U.S.-based technology consulting services and solutions provider reported high revenue growth in local currency terms in North America and growth markets, while growth in Europe was modest. Revenue growth was “very strong” in health and public services, and financial services segments, followed by “strong” growth in communications, media and technology and “modest” in products business, it said.

“The business environment remained competitive and, in some areas, we experienced pricing pressures,” the company said.

Revenue of Accenture’s consulting business grew 4% in U.S. dollar terms while it stood at 4% for the outsourcing business. For the full year of FY21, the company expects revenue growth, in U.S. dollar terms, to be nearly 3% higher over local currency terms. “Unfavourable fluctuations in foreign currency exchange rates have had and could have in the future, a material effect on our financial results,” it said.

What Brokerages Said

“Accenture’s strong Q2 performance and second-time upward revision in FY21 revenue growth guidance reflect strength in demand, particularly in outsourcing,” Emkay Global Financial Services wrote in a note. “A broad-based demand recovery and sustained growth momentum in revenue/order booking of the outsourcing business, augur well for Indian I.T. peers.”

Motilal Oswal said while strong growth and higher book-to-bill ratio in the outsourcing business augurs well for Indian IT, increased attrition remains a point of concern as higher employee costs would pressure profitability. “We maintain our positive stance on the sector as we expect sustained growth rates for a longer period of time,” the firm wrote in a note.

Nomura sees a positive read-across for Indian technology companies from Accenture’s performance. It highlighted Infosys Ltd., followed by HCL Technologies Ltd. as its top picks.

The NSE Nifty I.T. index erased losses to gain as much as 1.2%, led by HCL Tech, Tata Consultancy Services Ltd. and Mindtree Ltd.

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