Accenture's estimate of weaker-than-expected growth in the February quarter did not dampen confidence for Indian IT stocks, which rose on December 20 as investors shrugged off concerns over a dismal demand picture. LTIMindtree, Persistent Systems, Infosys, Tech Mahindra, TCS, L&T Technology, Wipro, Mphasis, and Coforge all surged 1-3 percent, increasing the Nifty IT index by 1.3 percent.
Analysts, on the other hand, remain pessimistic about the entire IT services sector, expecting downturn in demand to last well into the first half of FY25. Accenture's dismal growth outlook and cautious commentary further added fuel to the flames. Accenture's revenue for the November quarter increased by 1% year on year to $16 billion, falling within the company's forecast range of (-2)-2 percent growth but still the lowest in 13 quarters. The IT services company operates in the September-August fiscal year. Weak advice indicates that no recovery is in sight.
Accenture restated its current year-on-year growth projection of -2 to 2% for the February quarter, which, according to Jefferies, is weak and indicates no near-term turnaround. The consensus forecast for the February quarter was 2.8 percent increase. Accenture also stated that given the continued macroeconomic uncertainty, its clients continue to prioritize spending on cost-cutting initiatives, and as a result, demand for smaller projects (with swift revenue transition) remains low.
According to the firm, the operational climate has remained stable in recent quarters, and it does not expect a significant change in 2024, with smaller deals expected to remain muted.
Indian IT Faces a Longer Road to Recovery
Morgan Stanley expects Accenture's poor commentary and growth projections to outweigh the benefits for Indian IT companies in the short run.
"IT stock prices have risen in the last week, with more of a macro trade at work, ignoring near-term fundamentals. We see limited scope for revenue upgrades for India IT peers in the near term given the continuing challenging macro environment on discretionary spending, as highlighted in Accenture management's commentary," the brokerage firm stated in its report.
The firm also anticipates that overall sentiment would be unfavorable for Indian IT equities; however, considering that the market is dealing with near-term worries, a significant drop is unlikely.
According to Nomura, discretionary demand for Indian IT companies is unlikely to revive significantly in the remaining quarters of FY24 and the first half of FY25. As a result, the brokerage elected to remain cautious in the industry.
In addition to reiterating the consensus estimates, Jefferies stated that Accenture's broad-based slowdown across sectors and weak profitability for September-November indicate a weak near-term prognosis for Indian IT.
"Meanwhile, revenue decline in North America and the communication vertical along with rising challenges in the UK have negative readthroughs for Tech Mahindra, LTIMindtree and Coforge," Jefferies said in a statement.
Despite the fact that the Nifty IT index has risen more than 9% in the last month in anticipation of a better macroeconomic climate, Accenture's statistics do not imply a comeback, according to Jefferies.
