IT Shares Like TCS, Infosys and Others Rally on Accenture Earnings But Analysts Urge Caution

Manoj Prasad

Accenture, a big US IT consulting and outsourcing company, reported better-than-expected earnings for the first quarter on Wednesday. This caused the shares of top IT services companies like Tata Consultancy Services (TCS), Infosys, and Wipro to rise.

But experts have warned people to be careful because Accenture’s guidance for the next quarter was lower than expected. This means that clients will be cutting back on spending because the economy is uncertain.

Accenture Q1 Earnings In Line; Q2 Guidance Misses Estimates

Accenture said that its first-quarter sales went up 3% to $15.4 billion, which was a little less than what analysts had expected. However, the company reiterated its growth forecast for the full year 2023–2024. For the year ending in August 2024, the company thinks that sales will rise by 2 to 5 percent in local currency.

It also stuck to its forecast for an operating margin of 14.8% to 15%. But Accenture’s prediction of 0-4% revenue growth in the second quarter fell short of what was expected.

Julie Sweet, CEO of Accenture, said that the lackluster guidance was because clients, especially in the tech and media industries, were cutting back on spending because the macro situation was uncertain. This has a bigger effect on advising services than on outsourcing deals.

IT Shares Surge But Gains Could Be Short-Lived

Post-Acquisition, shares of TCS went up 1.1% to ₹3,854 each, while shares of Infosys and Wipro went up 0.8% and 1.8%, respectively. The Nifty IT index went up 1.5% because people were hopeful that Accenture’s big digital deals would be good for Indian IT companies in the next few quarters.

Analysts, on the other hand, have warned against the early rise in IT shares. Accenture’s sales and profits may have been about the same, but their forecast for the second quarter was not very good.

This could be bad for IT companies in the next three months, which are usually slow, finishing in March 2024. Also, the latest quarterly scorecards from big IT companies like TCS and Infosys have already let them down.

Why Accenture’s Performance Matters

Accenture depends on the global delivery model a lot, just like its Indian IT peers do, since 75% of its employees are based in low-cost countries like India and the Philippines.

For big transformational outsourcing deals, the company also fights hard with TCS, Infosys, Wipro, and Cognizant, which bring in a lot of money from managed services.

From a market environment point of view, IT companies pay close attention to Accenture’s signs of growth or problems. If Accenture is facing client spending cuts, it doesn’t look good for IT companies that depend on tech spending that people choose to make.

IT Shares Rally in 2023 But Upside Capped

So far in 2023, the Nifty IT index and the BSE IT gauge have each won over 24% and 26%, which is a lot more than the 18% rise in broader indices.

Inflation is going down in developed markets like the US, there are signs that rate hikes will be slowed down, and last year’s sharp drop in technology shares made prices look good.

Based on Accenture’s advice, however, it looks like IT shares can’t go much higher from where they are now. It’s possible that the IT pack will do worse than wider markets in 2023 because demand is expected to be tough.

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