IT stocks rally looks pre-mature after Accenture's underwhelming guidance. Should you sell?
economictimes.indiatimes.comIT stocks in the last few days following the Fed's dovish tilt could turn out to be premature, say analysts after going through the earnings of Accenture. The key peer of Indian IT services companies reported Q1 revenue growth in line with its guidance range, but Managed Services growth moderated to a 14-quarter low.
Accenture reiterated its headline FY24 revenue growth guidance of 2-5% YoYcc but increased the inorganic contribution to more than 2% vs 2% earlier, which implies that FY24 organic growth guidance has been trimmed slightly.
Management indicated no change in the demand environment – persistent weakness in BFS, CMT, and discretionary spends.
A likely weak discretionary demand environment is been seen as negative for Infosys, while incremental weakness in the UK could have negative implications for TCS.
Another quarter of double-digit decline in CMT is negative for Tech Mahindra, analysts said.
«Sharp up-move in India IT Services stock after Fed’s recent dovish comments is implying faster demand inflection than what ACN commentary indicates. Even Indian IT players’ 3QFY24 commentary will likely be cautious, in our view.
The market’s optimism in that context appears a bit premature. We will await better evidence,» JM Financial's Abhishek Kumar said.
Despite cautious comments coming in from analysts, the Nifty IT index was trading 1.4% higher with TCS, Infosys, and Wipro trading 1-2% higher each.
In the last week, the IT barometer has outperformed with about 7% returns.
«While the Fed’s move warranted an upward movement in stock prices, the resulting rally was a tad optimistic, in our view. IT stocks have increased based on re-rating versus EPS upgrades,» Kotak Institutional Equities said.
The broking firm
