Safe havens TCS, Infosys leave Accenture far behind on valuations
Safe havens TCS, Infosys leave Accenture far behind on valuations – The Nifty IT index has risen 37% this year, outperforming the Nifty 500 index by about 42% stakes are evidently enthused about the prospects of Indian IT companies. But there’s an inconvenient detail they ought to grapple with.
Investors worldwide are far less excited about the prospects of outsourcing giant Accenture Plc. Its year-till-date returns of 9% are almost an equivalent as that of the S&P 500 index.
The firm’s revenues are double the dimensions of India’s largest IT services firm, Tata Consultancy Services Ltd. And its share of revenues from digital, cloud and security services are now as high as 70% of revenues, far higher compared to its Indian peers.
If Indian IT companies are expected to realize greatly from the continued digital transformation at global firms, and therefore the accelerated shift to Cloud, it’s also important to recollect that Accenture, with its ahead-of-the-curve investments in these areas, stands to realize equally, if less . A pertinent question to ask, then, is why shares of TCS and Infosys have done much better.
In market composition in India and within the US markets. Tech stocks are seen as a secure haven post-covid, and since India doesn’t have pure technology bets, investors are buying stocks of outsourcing firms. The US markets offer a good array of technology plays, and far of the gains are captured by stocks like Amazon and Apple,” said an analyst at a domestic brokerage requesting anonymity.
The other factor at play is that the lack of decent alternatives within the Indian market were shunned by investors over concerns of debt as cash flows have fallen sharply. With tech stocks, the drop by revenue has been restricted to low single-digits, giving further weight to the shelter theory. the very fact that Q2 results of TCS and Infosys were before the Street’s expectations has also helped.
But the market-cap-to-revenue multiple of TCS and Infosys now stands at 6.6 times and 5.1 times, respectively, which translates into a 100% and 55% premium over Accenture’s valuation multiple. In end-June, the valuation premium of the 2 Indian firms stood at 55% and 6%, respectively. To make certain , it’s possible that global investors are under-appreciating gains for outsourcing firms, which Accenture shares too will eventually rise.
Companies will got to demonstrate that their post-covid growth rates are considerably better than pre-covid levels. For now, it’s just like the gains within the digital and cloud business is essentially coming at the expense of existing tech spends in traditional services with lower rates post-covid might not be materially different from the high single-digit growth rates of the recent past.
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