Accenture's second quarter results and FY 23 guidance were as positive as its order wins. A broker such as Nirmal Bang and JM Financial said that Accenture's strong show is reflective of healthy demand, but it has more to do with its unique set of capabilities it built up over the years, both organically and inorganically. In FY 2024, the growth difference between domestic IT winners and losers will likely increase, according to analysts. They find Tier 1 IT majors better placed than Tier 2 players, with Infosys among their top IT picks. Analysts like TCS and HCL Technologies.
A high exposure to banking and financial services BFS can affect growth for TCS, Infosys, Wipro, LTIMintree and Mphasis, according to Kotak Institutional Equities. Mphasis can have a larger impact because of high exposure to vulnerable verticals, BFS services mortgage BPO and clients large client in the logistics vertical Infosys and TCS, which are well positioned to gain share on a net basis. Wipro and Cognizant are vulnerable in the enterprise segment. It said these factors will help to increase the growth differential between winners and losers in FY 2024.
Nomura India has Infosys and Tech Mahindra as its preferred picks. Emkay Global prefers Infosys, Wipro, Tech Mahindra, HCL Tech and TCS in the same pecking order. Motilal Oswal Securities has TCS, HCL Tech, and Infosys as preferred picks in the Tier I IT space.
Valuation of Indian IT large-caps is closer to their 10 year average multiples, which makes them better plays considering systematic risk emerging around some large sectors. Antique Stock Broking said that they prefer large-caps over mid-caps to play the current uncertain environment.
This brokerage likes LTIMindtree and HCL Tech.
Accenture's outsourcing business accounts for about half of its revenues, which is in direct competition with Indian players. 75 per cent of its workforce is based in low-cost locations such as India and Philippines. Its results and guidance are closely monitored in India to understand business dynamics.
Kotak Institutional Equities said Accenture's results and outlook indicate that although the demand environment is slowing down, the nature of demand is shifting from discretionary to a mix of cost take-out and discretionary.
The demand trends vary across verticals with impacted ones favouring cost take-outs more, it said. The current demand environment favors those with strength in types of programs and core modernization. In Tier 1, TCS and Infosys fit the bill, while LTIM and Mphasis can benefit in mid-tier, according to Kotak Institutional Equities.