IT stocks: IT stocks look set for recovery with pick-up in outsourcing demand

The BSE Infotech index has gained 15.9% during the period, the third highest following 20.9% return in the BSE Healthcare and 16.6% increase in the BSE FMCG indices. In addition, barring Wipro, which gained 6.5%, other top IT stocks including TCS, Infosys, HCL Technologies, Tech Mahindra, and LTIMindtree have earned double-digit returns during the period.

The upward revision in the full- year revenue and operating margin guidance by Accenture, the NYSE-listed larger global peer of Indian IT exporters, last week has made analysts more optimistic about a turnaround in the growth prospects of the sector.

Agencies

While declaring inline numbers for the fourth quarter ended August 2024, Accenture raised the FY25 revenue growth guidance to 3-6% in constant currency from the earlier expectation of 1.5-2.5% growth, citing improving economic conditions and increased client engagements. It also upgraded the operating margin guidance to 15.6-15.8% from the earlier estimate of 14.8% for the full year.

Similar to the strong trend in new deal wins shown by Indian IT exporters over the past few quarters, Accenture reported $20.1 billion in new bookings for the fourth quarter. The order bookings for the full-year increased by 13% to a record $81.2 billion.

“We believe the guidance, deal bookings, and the overall commentary have turned the corner, which bodes well for the sector,” said Motilal Oswal Financial Services in a report. The brokerage added that the client spend behaviour is changing for the better which may result in the return of modernisations and discretionary projects.Axis Securities noted in a report that Accenture’s overall fourth quarter bookings were resilient, indicating robust demand despite prevailing uncertainties.