IT shares trade mixed post Accenture earnings; HCL Tech, Infy down up to 4%

IT shares: Analysts expect IT companies to witness moderate improvement in Q2FY27, as macro headwinds from the Middle East conflict continue to weigh on client spending and decision-making.

Information technology (IT) shares price movement

 

Information technology (IT) shares were trading mixed on the bourses with HCL Technologies and Infosys down up to 4 per cent, while Tata Consultancy Services (TCS) and Coforge gained up to 3 per cent in intra-day deals on Monday.

 

At 12:32 PM, the Nifty IT index quoted 0.60 per cent lower, after falling 0.86 per cent in intraday trade on the National Stock Exchange (NSE). The IT index was 1.6 per cent off its intraday high.

 

Currently, Persistent Systems, Wipro, TCS and Coforge were up in the range of 1 per cent to 3 per cent. On the other hand, LTM, Infosys and HCL Technologies were down up to 3 per cent.

 

 

Accenture Q4 results, brokerages view

 

Accenture reported revenue of $18.7 billion in Q4FY26, up 7 per cent year-on-year (YoY) in constant currency (CC) and ahead of the top-end guidance range of $17.75-18.4 billion, driven by uptick in small deals, faster mobilisation on newly won contracts, over-delivery by some acquisitions and the federal business. Growth was broad-based, with Americas, EMEA (Europe, the Middle East, and Africa), and Asia Pacific each growing 7 per cent YoY CC. 

 

Adjusted operating margin expanded 20bps YoY to 15.3 per cent. New bookings grew 4 per cent YoY in USD/ 5 per cent in local currency to $22.17 billion. Consulting bookings stood at $9.40 billion with a 1.0x book-to-bill, while Managed Services bookings were $12.77 billion with a 1.4x book-to-bill.

 

Accenture's management said the overall demand environment, including discretionary spends, did not change meaningfully in Q4. The top-end of Accenture’s guidance assumes stable to slightly improving discretionary spend, while the bottom-end factors in a deterioration. It expects client budgets to be 'more of the same'. The guidance also assumes steady AI-led deflation, continued intense pricing competition, and no recovery in the Middle East. Based on management commentary, Federal is expected to be a positive contributor in FY27, analysts at ICICI Securities said.

 

Adjusted operating margin is expected at 15.9–16.1 per cent. The read through for Indian IT will be positive, in general, given the better than expected performance of Accenture, albeit individual growth outlook will hold key ahead amid similar growth guidance by Accenture, the brokerage firm said.

 

“There was no sequential change in the demand environment, with Accenture noting that discretionary spending remained broadly unchanged and decision-making continued to be selective. The order book remains skewed toward large, multi-year outsourcing deals. Hence, while the Accenture print provides some positive read-through on large-deal activity it does not, in our view, point to a broad-based acceleration in discretionary spending and is unlikely to materially alter our cautious Q2FY27 outlook for the Indian IT services,” said analysts at Motilal Oswal Financial Services. 

 

Brokerages view on Indian IT sector

 

According to analysts at PL Capital, IT companies are expected to witness a moderate improvement in Q2FY27, as macro headwinds from the Middle East conflict continue to weigh on client spending and decision-making. The Fed’s recent 25bps rate hike, its first since July 2023, and the possibility of another hike later in CY26 are likely to keep IT spending decisions muted. AI traction remains healthy, but smaller-sized and shorter-tenure AI projects are yet to offset leakage in traditional services, limiting the pace of revenue growth.

 

The brokerage firm expects median Tier-I revenue growth of 0.9.0 per cent QoQ in CC terms, with growth partly aided by acquisitions, while Tier-II companies are expected to outperform with 2.7 per cent QoQ growth, supported by deal ramp-ups and stronger conversion of recent wins, analysts at PL Capital said.

 

“We introduce FY29 estimate while our organic FY27E & FY28E revenue estimate has been trimmed for most of the companies due to muted H1FY27 performance. Despite this our EPS estimate has moderately increased (except TCS, LTM & Latent View) largely due to INR depreciation. On the guidance front, we expect Infosys to narrow down its guidance band while HCL Tech is likely to maintain mid-range of its FY27E organic guidance,” the brokerage firm said.

 

Meanwhile, despite macro uncertainty, AI-led productivity and increasing competition, mid-tier Indian IT companies continue to perform well. .Mid-tier IT is likely to deliver double-digit organic revenue growth in FY27, with strong growth in H1, while large tiers are still working towards achieving mid-single digit revenue growth in FY27. Despite trading at 75 per cent premium to large tiers, analyst at JM Financial Institutional Securities expect the valuation premium for mid-tier IT to sustain or potentially widen in the near-term, given better near-term earnings growth visibility.  Disclaimer: Views and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers' discretion is advised.