Accenture earnings set tone for rally in IT stocks

BSE IT index stocks rose 2.5% with gains being led by Tech Mahindra, TCS and HCL Technologies, each up in the 3-4% range

Shares of information technology (IT) companies rose on Friday after US-listed Accenture reported good results for the quarter ended May. Investors lapped domestic IT stocks, as Accenture’s results signalled a robust demand environment and higher order flows for Indian IT firms, brokers said. On Friday, the BSE IT index rose 2.5 per cent, the gains led by Tech Mahindra, Tata Consultancy Services HCL Technologies, each rising three-four per cent.

“The good forecast by Accenture saw investors buying into IT stocks. Both large-cap and small-cap IT stocks were in demand on Friday,” said Alex Mathew, head of research, Geojit BNP Paribas Financial Services.

Indian IT firms keenly follow the earnings and growth estimates of US-based companies such as Accenture and Cognizant, as a bulk of the business for Indian IT firms comes from that country.

Higher growth estimates and good quarterly earnings of IT companies usually indicated a good outsourcing environment and healthy order bookings, analysts said.

“Order bookings remained healthy, even on the high base of previous quarters; Accenture remains on track to book orders at the higher end of $33-36 billion guida-nce…Citation of a stable environment quarter-on-quarter and sporadic instances of price increases (though not a secular trend) are incrementally positive,” said a Motilal Oswal Financial Services client note on the Accenture results.

The rise in IT stocks was also due to increasing defensive bets by investors, who are growing cautious ahead of the Budget. Analysts said investors were keeping a close watch on pre-Budget announcements and playing it safe by limiting exposure to industrial stocks such as capital goods.

Through the past month, IT stocks have risen 13 per cent, primarily due to the weak rupee and uncertainty regarding the coming Budget. During this period, the BSE Sensex has risen 3.02 per cent.

“The outperformance of IT stocks will continue for some more time, until the Budget is announced,” said Mathew.

Analysts say the stocks to watch out for are Tech Mahindra, MindTree and HCL Technologies. While index-heavyweight Tata Consultancy Services continues to beat market expectations, Infosys is grappling with issues relating to a change in its management.