Infosys, TechM, TCS under pressure post-Accenture Q4 nos; what lies ahead for Indian players?

IT stocks India: Domestic technology stocks were reeling under pressure on Friday, September 29, after global IT services company Accenture reported weaker-than-expected numbers for the fourth quarter of fiscal 2023 (Q42Y23). Accenture's full-year (FY24) earnings and first-quarter (Q1 FY24) revenue forecasts, too, came below expectations, signalling that high inflation and interest rates would choke enterprise spending through next year.

The Nifty IT index led losses with an over 1 per cent fall in early morning trade on Friday but eventually settled 0.3 per cent or 95.2 points lower at 31,784.4. Eight IT stocks in the information technology index declined on Friday while two stocks ended in green. Persistent Systems ended with gains of nearly a per cent, and Wipro edged higher, up 0.28 per cent. However, LTIMindtree was among the top Nifty IT losers down 1.14 per cent followed by L&T Technology which traded nearly 1 per cent lower. Moreover, Infosys, finished 0.68 per cent on the NSE. 

Here's how the Nifty IT traded on Friday:

Source: NSE

Accenture Q4FY23 results

Accenture reported a 4 per cent YoY rise in revenue at $16 billion (Est: $16.07 billion), but a 16 per cent fall in operating income at $1.91 billion. The company's operating margin declined by 2.7 per cent to end at 12 per cent (YoY) due to an increase in expenses, and the net profit fell 18 per cent to $1.37 billion (YoY). The company's new bookings stood at $16.6 billion, down 9.8 per cent.

Accenture CEO Julie Sweet said, "We have seen greater caution globally with lower discretionary spend and slower decision-making, and in particular for us, a significant impact from the challenges the communications, media, and tech industries (CMT) have faced."

Accenture forecasts 2024 full fiscal earnings growth guidance of 2–5 per cent, below the estimates of 4.6 per cent. The company's earnings growth guidance of -2 to +2 per cent for Q1 FY24 is below estimates of 4 per cent. Whereas adjusted operating margins will be 15.5 per cent to 15.7 per cent in FY24, as per the company.

Read-through for Indian IT; pretty much along expected lines

Commenting on the impact of Accenture's results on Indian IT companies, Kotak Institutional Equities said that Accenture results and guidance once again reiterated continued weakness in discretionary spending even as enterprises are willing to invest in core modernisation and cloud migration. Players with higher exposure to telecom (TechM) and consulting (Wipro) will be impacted more.

"North American geography continues to be under pressure compared to Europe. Caution on the macro is leading to clients looking for cost savings to fund transformation programs. Cost take-out programs are the dominant source of demand for Indian IT. The opportunity is not democratic and better addressed by select companies. The list includes Infosys, TCS, HCLT and LTIM among larger companies. The timeline for a macro improvement is difficult to predict; we expect the current scenario to continue in 2HFY24 and some uptick in discretionary spending in FY2025 especially in BFSI and hi-tech verticals," the brokerage added.

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