TCS, Infosys, HCL Fall Up To 5% After Accenture Cuts Guidance; Know What Analysts Say

IT Shares Sink Today: Shares of IT heavyweights Infosys, HCL Tech, Wipro and TCS fell between 3-5 per cent each on Friday morning. This comes after Accenture lowered its revenue forecast for fiscal year 2024 due to global uncertainty and weak client spending on consulting services. It, now, sees full-year revenue growth to be between 1-3 per cent, down from the earlier projection of 2-5 per cent.

The global IT major crashed 9 per cent at the New York Stock Exchange (NYSE). This led to a drop in the ADR (American Depository Receipt) shares of the Indian IT majors Wipro and Infosys.

Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, Coforge, Tech Mahindra, Persistent Systems, L&T Technology Services, LTIMindtree, and Mphasis from the Nifty IT index dropped between 2 per cent and 4 per cent.

Accenture’s results and outlook have reaffirmed the market’s expectations of cautious near-term demand.

Accenture, a key peer of Indian IT services companies, reported Q2FY24 revenues of $15.8 billion, flat year-on-year (YoY) in constant currency (CC), and down 2.6 per cent sequentially. This was in line with company guidance and Bloomberg consensus. The company, however, gave weak Q3 revenue growth guidance and lowered corresponding FY24 guidance.

On business outlook for the third quarter fiscal 2024 (Q3FY24), Accenture expects revenues to be in the range of $16.25 billion to $16.85 billion, or negative 1 per cent to positive 3 per cent in local currency, reflecting the company’s assumption of an approximately negative 1 per cent foreign-exchange impact compared with the third quarter of fiscal 2023.

Accenture’s business outlook for fiscal 2024 continues to assume that the foreign-exchange impact on its results in US dollars will be flat compared with fiscal 2023, the company said.

“Management commentary continues to indicate weakness in discretionary spending, partially compensated by cost efficiency related spending. Our discussions with the Indian IT peers echoed the cautious spending environment in the near term, which should drag down FY24 operational performance for them,” Motilal Oswal Financial Services said in a technology sector update.

On the other hand, outsourcing-driven deal bookings remained robust, clocking the second highest bookings of $21.6 billion in Q2, despite the high year-ago base (down 2 per cent Y-o-Y but up 17 per cent Q-o-Q). We see continued weakness in CMT as an ongoing overhang on Tech Mahindra (~40 per cent Comm. exposure), the brokerage firm said.

Accenture’s revenue guidance cut, Nomura said, implies a higher cut in organic growth to now -2 per cent to 0 per cent Y-o-Y vs 0 per cent to +3 per cent Y-o-Y earlier. Accenture expects flattish revenue growth in consulting and mid-single-digit growth in managed services in FY24.

Accenture noted that, while the long-term technology spending trends remain intact, client cautiousness due to macro uncertainties is weighing on tech spending in the near term; clients continue to prioritise cost take-out projects as discretionary spends remain weak.

“We believe discretionary demand is unlikely to recover meaningfully in H1FY25F for India IT, and maintain our cautious stance. While revenue growth for large-caps should improve in FY25F (up 6 per cent Y-o-Y) vs FY24F (up 1.5 per cent Y-o-Y), we expect it to be driven by cost take-out deals. We expect operating performance to vary across our coverage universe in FY24-25F. We have a Buy rating on Cognizant Technology and TechM in large-caps; and Coforge, Birlasoft and eClerx in mid-caps. We have a Reduce rating on TCS, Wipro, LTIMindtree, LTTS, and Mphasis.” it said in a report.

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