Infosys, Wipro among top Nifty50 losers on Accenture’s muted FY24 guidance

Major Indian IT stocks such as Infosys, Wipro, and Tech Mahindra declined up to 1 percent on September 29, reacting to Accenture’s modest revenue growth guidance of 2-5 percent year-on-year (YoY) in constant currency terms (CC) for the fiscal year 2023-24 (FY24). On the New York Stock Exchange in the overnight US trading, the American Depository Receipts (ADRs) of technology giants Infosys and Wipro slumped up to 3 percent on September 28.

The Dublin-headquartered Accenture’s 3-percent sequential decline in deal-bookings in the August-ended quarter (Q4FY23) versus earlier guidance of flat growth, too, spelled bad news for rest of IT pack. Accenture follows the September-August financial year.

Bleak outlook

The management further stated that it does not assume any improvement in macro-environment in the full-year guidance and suggests that it would gradually build on over the year after a weak Q1FY24.

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In Q4FY23, Accenture’s revenue saw a modest growth of 4 percent in CC terms YoY at $16.1 billion, 70 basis point (bp) below the consensus. While the managed services revenue saw its slowest growth in 11 quarters, consulting services revenue dropped 2 percent YoY in CC terms.

The company’s operating margin, however, rose 20 bp YoY to 15 percent in Q4, meeting its adjusted margin guidance of 15.4 percent. Stable attrition was also seen as they added around 950 employees in the August-ended quarter.

Vertical-wise, the demand for financial services and communications and media (CMT) remained weak in Q4FY23. The CMT vertical reported 12 percent YoY decline over the quarter in CC terms versus 8 percent CC YoY decrease in Q3FY23.

Analyst view

As the management highlighted CMT and North America as the key weak areas, analysts at Motilal Oswal Financial Services see this as negative for Tech Mahindra, which accounts for 40 percent of communication exposure.

“In our view, Accenture’s commentary implies near-term weakness for Indian IT companies,” the brokerage firm said in their morning update.

That said, the management shared an optimistic stance for the second half of FY24. “The new budget cycle of CY24 would allow its clients to repriortise projects to drive incremental growth,” they said.

Analysts at Emkay, meanwhile, said that Accenture’s Q1 guidance reflected a challenging demand environment in the near-term and conservative approach by the management.

“We believe recovery in technology spending is a matter of time but requires some stability returning in macro conditions,” they added in a recent note.

On the generative artificial intelligence (AI) front, Accenture is taking an early leap. It has around 300 generative AI projects, which has generated $200 million revenue in Q4FY23.

“The implications of Gen AI will become more pronounced over the coming quarters as clients are currently undergoing proof-of-concepts (POCs) and use-cases to integrate AI into their core operations,” the management underlined.

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