Accenture’s weak guidance signals no revival in sight for Indian IT companies

New Delhi:  Accenture’s weak 1QFY24 guidance pushes out hopes of a second half recovery for India IT Services players, JM Financial Institutional Securities said in a report.

Besides, a modest implied growth rate through 2HFY24 for Accenture risks India IT Services players’ FY25 revenue growth estimates as well. This, we believe, is an incremental negative, the report said.

Continued weakness in North America’s BFSI and Hi-tech, though not surprising, indicate demand has not bottomed yet. ACN's commentary that weaker macro is taking its toll on the pace of spending of even the larger programs could mean that large deal ramp-ups could take even longer, further impacting revenue growth, the report said.

“Some reversal in NIFTY-IT, after a 14 per cent up-move over past six months, is in order,” the report said.

“Given Accenture’s full year guidance is a first peek into potential growth trajectory for FY25, we see its underwhelming guidance as an incremental negative for the sector. We continue to believe that the unwinding of excess IT spend could keep incremental revenue growth muted through FY24. If Accenture’s commentary is anything to go by, FY25 growth expectations could be at risk as well”, the report said.

Emkay Global Financial Services said that Accenture’s revenue was at the mid-point of the guidance for the second consecutive quarter in Q4.

ACN’s Q1FY24/FY24 guidance reflects a challenging demand environment in the near term and a conservative approach by mgmt. for growth prospects in H2, considering the prevailing macro uncertainties.

Weak discretionary spending and slower decision-making amid macro uncertainties continue to weigh on demand.

“Our/consensus FY25 growth estimates currently build in a gradual improvement in demand and, thus, carry risks if macro weakness persists. We believe recovery in technology spending is a matter of time but requires some stability returning in macro conditions. Nifty IT Index has outperformed the broader markets by 3 per cent / 8 per cent in the last 1M/3M on account of expectations of anticipated gradual recovery in demand,” the report said.