As Accenture’s deal bookings hit an all-time high of $22.1 billion, up 17% YoY in CC terms, in the second quarter, investors are betting that large Indian IT companies may gain more than smaller ones.

“Increasing client focus on larger deals and slowdown in smaller deals position larger IT firms more favorably than mid/small sized firms,” Jefferies analysts Akshat Agarwal and Ankur Pant said.

Accenture is usually seen as a bellwether for the global IT sector, and analysts gauge the prospects for the Indian IT sector based on the global firm’s commentary and business outlook.

Accenture’s Q2 revenue growth of 9% YoY was in line with its guidance range, but the global IT major lowered the upper-end of its FY23 growth guidance by 100 bps.

“Rising caution among clients with focus on cost optimization suggests a moderation in growth in FY24. This is evident from Accenture’s implied 2HFY23 revenue growth guidance of 4-8% YoYcc,” Jefferies said.

Accenture’s results and outlook indicate that though the demand environment is slowing down, the nature of demand is shifting from discretionary-led to a mix of cost take-out and discretionary.

“The current demand environment favors those with strength in types of programs and core modernization. TCS and Infosys fit the bill in Tier 1, whereas LTIM and Mphasis can benefit in mid-tier. Exposure to impacted verticals/services/clients will also play a role in determining growth,” Kotak Institutional Equities said.

Infosys and TCS are seen as well positioned to gain share on net basis while Wipro looks vulnerable, the brokerage said.

Nomura has warned that Accenture’s guidance of 8-10% FY23E revenue growth in CC terms (including ~200bp from acquisitions) indicates softening demand for IT services.

“We remain concerned about the demand outlook for Indian IT services and expect ~300bp slower revenue growth (at 8.2% y-y) in FY24F vs FY23F for large-caps,” it said, while adding that it prefers largecaps over midcaps.

Nomura’s top picks include Infosys and Tech Mahindra in largecaps, and Coforge and Persistent in midcaps.

Nomura’s top picks include Infosys and Tech Mahindra in largecaps, and Coforge and Persistent in midcaps.

Antique Stock Broking said Accenture’s strong booking and strong pipeline commentary bodes well for Indian IT largecaps. “Valuation of Indian IT largecaps are now closer to their 10-year average multiples, which makes them better plays considering systematic risk emerging around some large sectors,” it said, adding that it continues to prefer largecaps over midcaps to play the current uncertain environment.

Antique’s top picks among largecaps remain HCL Tech and LTIMindtree.

Down nearly 23% in the last one year, Nifty IT is among the worst-performing sectoral indices on Dalal Street. In the morning session, LTIMindtree, Infosys and TCS were trading over 1% higher.

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