Global IT’s reassurance on client spends a booster for Indian peers

Commentary from global peers has continued to be reassuring on client spending all through despite increasing macro volatility and associated investor and street concerns going by prior cycles. According to analysts, demand is holding up well for Indian techs for now, with the likely macro setup expected to benefit offshore techs, albeit with a lag.

“Accenture’s results confirm the ‘All’s well for now’ thesis for Indian techs despite increasing concerns of hit on IT spending given a weak macro set up,” said Manik Taneja, analyst,

. “Accenture continues to emphasise ‘compressed transformation’ imperative for clients, strong pipeline and ‘no change in decision-making patterns’ although suggests that ‘cost optimisation’ is gaining currency in client priorities, which should augur well for offshore techs.”

Agencies

The Nifty IT index has corrected 28% this year – a stark relative underperformance of 19% over the Nifty index driven by higher odds of a recession in developed markets in the next 12 to 18 months. While declined 12% this year, and fell nearly 25% each. , , L&T Infotech, and have declined more than 40% since January 1.

While the Nifty IT index is currently trading 22.79 times one-year forward earnings compared to a five-year average of 21.74, several stocks such as Infosys, HCL Tech, Wipro, Tech Mahindra, L&T Infotech, Mindtree, and

among others are trading at discounts to their five-year average PE.

According to Dipesh Mehta of

, IT services will rise in the coming years due to growing tech intensity, higher digitisation, and cloud adoption. “However, the potential macro slowdown may impact near-term growth.”
Accenture management indicated a healthy pipeline and strong spending in digital, cloud, sustainability, and security. While it did not indicate any slowdown in demand due to a weakening macro environment, it sees a shift in spending toward cost savings as against a growth focus earlier.

“Accenture’s commentary suggests that the demand environment remains supportive, and the weakening macro environment has not yet started impacting growth in the sector,” said Gautam Duggad, head of research,

. “Infosys, HCL Tech, and TCS remain our preferred picks within the Tier I IT space.”

Accenture reported a 21.8% year-on-year revenue growth at $16.16 billion in the March quarter, led by 24.4% growth across consulting and 18.7% in outsourcing. March 2022 quarter performance has also driven a sharp increase in FY22 annual revenue guidance, with the company raising the outlook to 25.5-26.5% YoY growth against 24-26% earlier.

“Strong outlook and robust bookings for Accenture reflect the secular nature of demand for IT services in the near term, though medium-term risks persist,” said

Jhunjhunwala, analyst, .