Accenture’s strong Q2 bodes well for Indian IT, but valuations capture this

Global IT services provider Accenture posted strong Q2 earnings aided by double-digit growth in the outsourcing segment. Revenues rose to USD12.1 billion beating its guided range of USD11.55 billion-11.95 billion. However, a key takeaway for investors in Indian IT stocks is Accenture’s revenue FY21 growth guidance. This is because Accenture’s earnings are often seen as an indicator for Indian IT companies’ future performance. The company raised its revenue growth guidance in local currency from 4%-6% to 6.5%-8.5%.

According to analysts at JM Financial Services Ltd, the strong earnings and revenue guidance should lend confidence on the growth resilience for Indian techs going into FY22. “The outsourcing book/bill ratio at 1.4 times continues to trend above long-term historical average, and we believe this could reflect in strong order bookings for the Indian techs as well,” they said in a report on 18 March.

In Q2, bookings in the outsourcing segment stood at USD8 billion in Q2, a record high. In a post-earnings conference call, the management said, outsourcing revenue growth of 11% year-on-year in local currency, has been the highest in the last six years.