After Accenture Reduces Guidance, TCS, Infosys, and HCL Drop Up To 5%; See What Analysts Say

IT Shares Drop Today: On Friday morning, the major IT players Infosys, HCL Tech, Wipro, and TCS saw their share prices drop by three to five percent each. This comes after Accenture cut its revenue projection for the 2024 fiscal year because of sluggish client expenditure on advisory services and unpredictability in the global economy. It has revised its full-year sales growth estimate from 2 to 5 percent to between 1 and 3 percent.

The multinational IT giant saw a 9% collapse at the New York Stock Exchange (NYSE). The Indian IT giants Wipro and Infosys saw a decline in their ADR (American Depository Receipt) shares as a result.

The Nifty IT index saw a decline of between two and four percent for the following companies: Tata Consultancy Services (TCS), Infosys, HCL Technologies, Wipro, Coforge, Tech Mahindra, Persistent Systems, L&T Technology Services, LTIMindtree, and Mphasis.

The market’s forecasts of cautious demand in the short term have been confirmed by Accenture’s earnings and outlook.

A significant peer of Indian IT services businesses, Accenture, announced Q2FY24 sales of $15.8 billion, which were down 2.6% sequentially and unchanged year over year (YoY) in constant currency (CC). This was consistent with both the Bloomberg consensus and the corporate forecast. However, the business reduced the comparable FY24 projection and provided dismal Q3 sales growth guidance.

In terms of business outlook, Accenture projects revenues for the third quarter of fiscal 2024 (Q3FY24) to be between $16.25 billion and $16.85 billion, or negative 1% to positive 3% in local currency. This estimate reflects the company’s assumption of a negative 1% foreign exchange impact relative to the third quarter of fiscal 2023.

The firm said that Accenture’s business plan for fiscal 2024 is still predicated on the assumption that the effect of foreign currency on its earnings expressed in US dollars will remain unchanged from that of fiscal 2023.

“Discretionary expenditure weakness is still evident in management comments, although it is somewhat offset by cost-efficiency-related spending. In a technology sector report, Motilal Oswal Financial Services said, “Our conversations with the Indian IT peers echoed the cautious spending environment in the near term, which should drag down FY24 operational performance for them.”

However, deal bookings led by outsourcing continued to be strong, with the second-highest bookings of $21.6 billion in Q2 despite the high base from the previous year (down 2% year over year but up 17% Q over Q). The brokerage company said, “We view prolonged weakening in CMT as an ongoing drag for Tech Mahindra (~40% Comm. exposure).

According to Nomura, Accenture’s lower revenue estimate suggests a larger reduction in organic growth, which is now expected to be between -2 and 0% year over year instead of between 0% and +3% before. Accenture projects mid-single-digit growth in managed services and flattish revenue growth in consulting for FY24.

Accenture observed that while long-term trends in technology spending are still there, customers’ caution as a result of macroeconomic worries is having a short-term negative impact on tech spending; clients are still giving cost-cutting initiatives priority over discretionary expenditures.

“We continue to remain cautious and expect that discretionary demand for Indian IT is unlikely to materially revive in H1FY25F. Although revenue growth for large-caps is expected to be driven by cost take-out arrangements, it should increase in FY25F (up 6% year over year) compared to FY24F (up 1.5% year over year). In FY24–25F, we anticipate varying operational results throughout our coverage universe. For large-cap stocks, Cognizant Technology and TechM, as well as mid-cap stocks, Coforge, Birlasoft, and eClerx, we have a buy rating. TCS, Wipro, LTIMindtree, LTTS, and Mphasis all have a reduced rating. It was said in a document.