Infosys declines after weak guidance from Accenture fuels earnings concern

Shares of Infosys traded in the red in early hours on June 23 after disappointing revenue guidance from US tech major Accenture raised concerns over earnings of the Indian software giant.

Accenture reported a 5 percent on-year growth in revenue on a constant currency basis for the quarter ended May, yet the company still cut its full-year growth guidance, reducing the upper end by 100 basis points.

This revision in guidance may be attributed to a notable decrease in bookings growth, particularly in the outsourcing sector, indicating an environment of increased scrutiny regarding IT expenditure.

Accenture’s earnings has fuelled concerns of a moderation in deal bookings, reflecting a weak demand environment which dented sentiment for domestic IT players, including Infosys.

In addition, the recent exit of two senior executives, Narsimha Mannepalli and Vishal Salvi, from Infosys, with responsibilities, including delivery, has also concerned investors. “This development has the potential to revive investor concerns regarding an uptick in leadership attrition following the exits of co-presidents Ravi Kumar and Mohit Joshi over the past three quarters,” brokerage firm Motilal Oswal Financial Services highlighted in its report.

Even though MOFSL sees this as an addressable risk, it believes any supply-demand gap in project management could potentially hurt project timelines for Infosys in the short term.

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At 9.21am, the shares of Infosys were trading at Rs 1,270.15 on the National Stock Exchange, down around 1 percent from the previous close.

Despite near-term weakness in demand, MOFSL remains positive on the long-term prospects of the company and IT services companies could see a strong bounce-back as the macro environment stabilises.

The brokerage firm also sees Infosys as an attractive ‘buy’ at its current valuation, after the stock corrected around 30 percent from its peak following weak earnings in the recent quarters.

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