HCL Tech, TCS, Infosys, other IT stocks drop up to 5%. Blame it on Accenture

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

"Accenture highlighted further cuts in short-cycle discretionary projects, a negative for companies such as Wipro, , and Infosys where estimates incorporate some recovery in discretionary spending. Noting the weak near-term demand, we expect large IT services companies to start FY2025E with a cautious guidance," said Kawaljeet Saluja of Kotak Equities.

Nomura analysts also believe that discretionary demand is unlikely to recover meaningfully in H1 of FY25 for India IT.

"While revenue growth for large-caps should improve in FY25F (+6.0% YoY) vs FY24F (+1.5% YoY), we expect it to be driven by cost take-out deals. We expect operating performance to vary across our coverage universe in FY24-25," Nomura said. The Japanese broking firm has buy ratings on , , and eClerx and reduce ratings on TCS, Wipro, LTIMindtree, LTTS and Mphasis.

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Nuvama, however, noted that Accenture's outsourcing segment is still expected to grow higher than mid-single digits during H2FY25 – which augurs well for Indian IT companies.

"More importantly, we believe FY25 Street estimates, for Indian IT companies, have been adequately rationalised, and have little downgrade risk, from current levels. We maintain our positive stance on the sector and expect a sustainable strong demand environment to drive strong earnings growth over the next three years," Vibhor Singhal of Nuvama said.

Takeaways from Accenture earnings, growth guidance

Accenture reported flat revenues in CC terms on YoY comparison for 2QFY24 (February-ending quarter), at the midpoint of -2 to +2% growth guidance range. Growth was led by managed services, which grew 3%, while consulting declined 3%. Key verticals of CMT and financial services declined 7% and 6%, while health and public services and resources grew 10% and 4%.

Accenture cut its FY24 revenue growth guidance to 1-3% from 2-5% in CC terms. Its revenue growth guidance now includes inorganic contribution approaching 3% in FY24E (vs 2%+ contribution expected earlier). This implies a higher cut in organic growth to now -2% to 0% YoY vs 0% to +3% YoY 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.

On adjusted EBIT margin, Accenture has lowered its guidance to 15.5% from 15.5-15.7% for FY24E, implying 10bp YoY improvement.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)