Home >Markets >Mark To Market >Stocks of IT companies are on cloud nine after Accenture’s strong results

Shares of software services firms Tata Consultancy Services Ltd (TCS) and Infosys Ltd hit a new 52-week high on Friday after Accenture Plc announced better-than-expected results for its first quarter. The company follows a September-August financial year. What’s more, the management’s commentary was reassuring too. Analysts say that large Indian IT firms tend to mirror Accenture’s performance with some lag, and with other channel checks suggesting strong IT demand, the outlook for India-based companies remains strong.

Post results, Accenture’s shares rose by about 7% in the US on Thursday. The company has revised its revenue growth guidance for FY21 upwards to 4-6% from 2-5% indicated at the time of announcing Q4FY20 results.

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As analysts from Jefferies India Pvt. Ltd point out: “Accenture’s 1QFY21 results reflect accelerated spends on cloud, security and digital transformation which are key medium-term growth drivers." “Tier-I Indian IT firms are favourably positioned to leverage these growth opportunities. Accenture’s expectation of growth recovery from 2HFY21 is fairly aligned with our expectations for Tier-I Indian IT firms," it added.

Further, Accenture’s new bookings for the three months ended 30 November grew 25% year-on-year to $12.9 billion. This was primarily driven by outsourcing orders, which increased as much as 47% year-on-year to $6.3 billion. This augurs well for demand for India’s top IT companies.

“The outsourcing order book/bill ratio continues to trend higher than historical levels at 1.2 times for the second quarter in a row and this should also reflect in strong order bookings for Indian techs in our view," said analysts from JM Financial Institutional Securities Ltd in a 17 December report.

Accenture’s first quarter revenue growth of 2% year-on-year in constant currency terms was much ahead of its guided range of -3% to 0%. Analysts point out recovery in revenue was broad based. Accenture said revenue growth in local currency was solid in North America and modest in growth markets, partially offset by a slight decline in Europe.

Overall, Accenture’s results indicate that demand outlook remains strong and there is acceleration in demand for cloud services. Remember that in a recent meeting with analysts, the TCS management spoke about greater traction from cloud adoption across all industries.

JM Financial analysts added, “Akin to what peers like TCS are suggesting, Accenture also believes that we are in an era of compressed digital transformation with the clients accelerating their cloud journey driven by the pandemic."

Of course, valuations are also on cloud nine like the rest of the market. But, at least, in the case of IT services stocks, the outlook has markedly improved post-covid.

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