Does Accenture’s guidance indicate persistent weakness for Indian IT sector- Check JM Financial’s strategy on Infosys, TCS, Tech Mahindra and more

Does Accenture’s guidance indicate persistent weakness for Indian IT sector? Check JM Financial’s strategy on Infosys, TCS, Tech Mahindra and more

Accenture’s numbers brought out some striking implication about the IT industry dynamics. The lower end of FY24 organic growth guidance (now slightly below 0-3%) implies no improvement even in H2. The management indicated no change in demand environment – persistent weakness in BFS, CMT and discretionary spend. Budget conversations, though not concluded, are still revolving around spend reprioritisation.

JM Financial expects Accenture’s demand may stay weaker for longer. “Though the Q1FY24 growth (+1% YoY cc), albeit within its guided band (-2% to +2%), was the slowest since pandemic. Interestingly, incremental deceleration over the past couple of quarters has come from Managed Services, a closer proxy for India IT Services demand. A soft Q2 guidance (-2% to +2%), despite a favourable comp, suggest trend reversal, if any, would be back-ended,” they highlighted.

According to them the sharp up-move in India IT Services stock after Fed’s recent dovish comments is implying faster demand inflection than what ACN commentary indicates, “Even Indian IT players’ 3QFY24 commentary will likely be cautious, in our view. Market’s optimism in that context appears a bit pre-mature. We will await better evidence,” JM Financial added.