Infosys, TCS, Wipro to HCL Tech: IT stocks rise after strong Accenture earnings

Stock Market Today: Infosys, Tata Consultancy Services, HCL Technologies, Wipro and other IT stocks climbed up to 1 per cent in early trade on Friday, December 20 after a strong performance by Accenture in the first quarter added to investor confidence. 

The share price of Accenture Plc at $372.16 had ended with gains of 7.03% in the last trading session.

Accenture Q1FY25 results

The IT giant Accenture reported its first-quarter results on Thursday, December 19, which exceeded Wall Street's revenue projections. Accenture's first-quarter revenues stood at $17.7 billion, above analysts' projections of $17.12 billion, as per news reports.

Analysts said the higher usage of AI-powered solutions by clients led to an increased demand for its services.

Accenture's Q1 revenue of $17.7 billion grew 8% year-on-year (YoY) in constant currency terms and was above the guided range of 2-6% year-on-year growth in constant currency terms, said analysts at Jefferies India. 

Growth was led by consulting, up 6% YoY, aided by a favourable base and the ramp-up of large deals, and managed services (MS), which grew 11% YoY.

Higher growth guidance

Accenture raised its FY25 revenue growth guidance by 100bps to 4-7% YoY, which includes around 3% from acquisitions. The increase in guidance reflects the beat in the first quarter earnings and strong visibility for the second quarter, said analysts.

Impact on Indian IT companies

Nuvama Institutional Equities said that Acceture's guidance upgrade is due to the faster-than-expected execution of the deals won earlier. Improvement in outsourcing growth is a positive for the Indian IT Services sector. 

Nuvama maintains a positive stance on the sector and expects a sustainable strong demand environment, along with opportunities from Gen AI, to drive healthy earnings growth over the next three years.

As per Jefferies India, the strong net hiring with declining utilisation levels indicates improving revenue visibility for Accenture, which may extend to Indian IT firms as well.

The revenue growth in the financial services vertical after four straight quarters of decline/no growth has a positive read-through for companies such as Coforge, Tata Consultancy Services, LTIMindtree and Wipro, said the global brokerage firm.

However, it added that Nifty IT valuations at 29.5-time price to earnings (PE) are at a 21% premium to the five-year average and 49% premium to Nifty, leaving limited headroom for PE multiples to re-rate. Despite this, stocks offering strong earnings growth should sustain premium valuations, it added. Jefferies prefers Infosys, TCS and Coforge in the IT space.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.