Accenture’s second quarter results and FY23 guidance were as positive as its order wins. Brokerages such as Nirmal Bang and JM Financial said while one can draw the conclusion that Accenture’s strong show is reflective of healthy demand, it more to do with its unique set of capabilities that it built up over the years, both organically and inorganically. Analysts believe growth differential between domestic IT winners and losers will likely increase in FY2024. For now, they find Tier 1 IT majors to be better placed than Tier 2 players, with Infosys among their top IT pick. Analysts also like TCS and HCL Technologies.
Kotak Institutional Equities said high exposure to banking and financial services (BFS) can impact growth for TCS, Infosys, Wipro, LTIMintree and Mphasis. Mphasis can have a larger impact, given high exposure to vulnerable verticals (BFS), services (mortgage BPO) and clients (large client in logistics vertical).
“Infosys and TCS are well positioned to gain share on a net basis. Wipro and Cognizant in the enterprise segment are vulnerable. These factors will serve to increase the growth differential between winners and losers in FY2024,” it said.
Nomura India has Infosys and Tech Mahindra as its preferred picks. Emkay Global prefers Infosys, Wipro, Tech Mahindra, HCL Tech and TCS in the same pecking order. Motilal Oswal Securities has TCS, HCL Tech, and Infosys as preferred picks in the Tier I IT space.
“Valuation of Indian IT large-caps are now closer to their 10-year average multiples, which makes them better plays considering systematic risk emerging around some large sectors. We continue to prefer large-caps over mid-caps to play the current uncertain environment,” Antique Stock Broking said.
This brokerage, meanwhile, likes HCL Tech and LTIMindtree.
Accenture’s outsourcing business accounts for roughly half of its revenues, which is at direct competition with Indian players. Also, 75 per cent of its work force is based in low-cost locations such as India and Philippines. As such, its results and guidance are keenly tracked in India to understand the business dynamics.
Kotak Institutional Equities said Accenture’s results and outlook indicate that though the demand environment is slowing down, the nature of demand is shifting from discretionary-led to a mix of cost take-out and discretionary.
Demand trends vary across verticals, with impacted ones favouring cost take-outs more, it said. “The current demand environment favours those with strength in types of programs and core modernization. TCS and Infosys fit the bill in Tier 1, whereas LTIM and Mphasis can benefit in mid-tier,” Kotak Institutional Equities said.
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