IT shares extend gains for 3rd day, but Jefferies sees downside risk after Accenture's muted guidance

IT shares extend gains for 3rd day, but Jefferies sees downside risk after Accenture's muted guidance

The shares of Indian IT companies extended gains for the third consecutive session on December 19 as softer US inflation boosted Fed rate cut hopes and Accenture’s better-than-expected Q1 results supported investor sentiment.

The rise in the share prices pushed the Nifty IT index more than 1 percent higher to hit its day’s high at 39,054.35. The index then pared some gains to trade 0.17 percent higher at 38,700, as seen at 2.40 pm.

Cooling US inflation signals more Fed rate cuts:

US consumer prices rose less than expected in the year ending on November. US consumer prices rose 2.7 percent year-on-year in November, slowing from a 3 percent increase in the 12 months through September.

The moderation in the in the US Consumer Price Index, reported by the Labor Department's Bureau of Labor Statistics on Thursday, has reignited hopes for more rate cuts by the US Federal Reserve in the near future.

Lower interest rates in the US make emerging market equities like India attractive for foreign portfolio investors as Treasury yields and dollar typically decline.

A rate cut in the US is also expected to increase the discretionary spending limit, which in turn benefits IT companies which derive a significant portion of their revenue from the North American market.

Strong Accenture results:

Accenture released better-than-expected first-quarter results on Thursday, driven by artificial intelligence (AI) solutions that help clients integrate the technology to enhance productivity.

The IT consulting firm reported revenue of $18.74 billion, compared with analysts' average estimate of $18.52 billion, according to data compiled by LSEG. New bookings during the quarter increased 12 percent to $20.9 billion, with consulting bookings of $9.88 billion and managed services bookings of $11.06 billion.

The US-based IT giant's management, in a post-earnings investor call Thursday, highlighted that the pace of overall and discretionary spending was at the same level as the previous year.

Jefferies on IT sector:

Jefferies has warned of downside risk to Indian IT stocks after Accenture guided for 1.5-4.5 percent organic growth in FY26. The international brokerage said that the firm’s "steady-to-moderating" outlook signals limited discretionary spending despite GenAI project pickup.

It noted that Accenture has retained 2-5 percent year-on-year (YoY) revenue growth guidance after strong Q1, suggesting demand uncertainty. Historically, lack of upward revision post-Q1 has preceded downward revisions for Accenture, Jefferies added.

The international brokerage expects limited PE expansion for Indian IT firms and reiterated its selective stance on the sector.

Top IT gainers:

Persistent Systems, Tata Consultancy Services (TCS), Tech Mahindra, Infosys, Wipro and Mphasis shares were trading in the green with marginal gains in the afternoon, after rising up to 1 percent earlier during the day.

Coforge, LTI Mindtree and HCL Tech shares meanwhile were trading in the red, falling up to 1 percent.

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