As Accenture ups FY22 guidance, D-St analysts pick their top Indian IT bets

There remain concerns over supply-side constraints such as elevated attrition, weak employee addition, and also over volatility in foreign exchange. But the results of the US-based firm’s outsourcing division, keenly followed by analysts here in India, suggest fears of slowdown globally are not impacting the decision-making of IT clients, at least for now. For now, analysts are busy picking their Indian IT bets ahead of the first-quarter earnings season.

“The demand environment remains supportive, and the weakening macro environment has not yet started impacting growth in the sector. While supply-side challenges remain a concern, with elevated attrition and lower headcount addition, Accenture’s margin guidance implies a stable margin performance in FY23,” said

Securities, as it picks , and TCS as its preferred picks in the Tier I IT space.



Accenture raised FY22 revenue growth guidance to 25.5–26.5 per cent in local currency terms from 24–26 per cent while maintaining its margin guidance at 15.2 per cent. The IT major, however, cut the top end of EPS guidance by 11 bps, as it now incorporates headwinds of 15 cents from Russia and 14 cents from forex incrementally.

Accenture’s strong Q3 performance and upward revision in local currency revenue growth guidance for FY22 indicate a robust demand environment, said

, which added that broad-based healthy demand, steady revenue growth and healthy order booking in outsourcing (10.5 per cent YoY YTD) augur well for its Indian IT peers.

“Accenture saw attrition rise sequentially in Q3 and management indicated that the uptick was seasonal and the bulk of it was driven by India. The management indicated a conducive environment for price increases, but price increases continue to lag wage inflation. Robust demand and steady decision-making alleviate any concerns over near-term growth; however, elevated attrition and volatility in foreign exchange pose challenges to earnings,” Emkay said.

Among tier 1 names, the brokerage likes Infosys, HCL Tech, , and TCS in the pecking order. , LTI, Firstsource Solutions, , Birlasoft and are its midcap picks in the same pecking order.

“Accenture has yet again delivered higher-than-expected revenue growth despite a harsher currency headwind of 5 per cent than the expectation of 4 per cent. The management raised revenue growth guidance for a third consecutive quarter despite the increase in currency headwind from 3 per cent to 4.5 per cent for FY22. Bookings were strong too, with a book to bill of more than 1x. Accenture’s strong performance and solid commentary supports our thesis of a robust tech upcycle,”

said.

The brokerage said that the outsourcing growth remains high and bookings also remain strong, which bodes well for Indian IT services companies, as it showed its preference for HCL, Infosys and TCS among largecaps and

, LTI and Mindtree among midcaps. The brokerage prefers Zensar, and Firstsource, among smallcaps.

Accenture expects revenues for Q4FY22 to be in the range of $15-15.5 billion, an increase of 20-24 per cent in local currency, which incorporated a negative 8 per cent foreign-exchange impact YoY.

Nomura India said cross-currency could be a material headwind to the reported growth of Indian IT companies in FY23F. Dollar strength against European currencies is likely to negate the positive impact on margins from the rupee depreciation against the dollar.

“Pricing increase may act as a key lever in margin defence. Accenture noted that it has begun to see some effects of price increases in 3QFY22, and it expects further boosts in coming quarters. Newer contracts are coming in at better pricing, which may help to partly offset margin headwinds in 2HFY23F and FY24F, particularly from higher-than-usual salary hikes, in our view,” Nomura said adding Infosys and TechM remains it only Buy calls in the sector.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)