IT takes another blow, stocks decline

Mumbai: Shares of information technology (IT) companies weakened in a firm market on Friday as Accenture's lower-than-expected revenue guidance for FY24 soured sentiment. The NSE IT index fell 0.3% while the benchmark Nifty gained 0.6%. Analysts said Accenture's fourth quarter results ended August 31 and a softer forecast for next year indicate a bleaker outlook for the sector.

LTIMindtree fell 1.1%, Infosys declined 0.7%, HCL Technologies dropped 0.4% and TCS ended 0.3% lower.

"Given ACN's (Accenture) 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," said JM Financial's analysts Abhishek Kumar and Anuj Kotewar in a note to clients. "We continue to believe that the unwinding of excess IT spend could keep incremental revenue growth muted through FY24. If ACN's commentary is anything to go by, FY25 growth expectations could be at risk as well."

The likelihood of a slowdown in the US and Europe has led to investors and analysts turning cautious about the IT sector's prospects. Most large software services exporters derive a large chunk of their revenues from developed economies. The dim outlook for IT spending has resulted in analysts cutting earnings estimates for these companies.

"The expectations are muted for FY24 for Tier 1 companies," said Pankaj Pandey, head of research, ICICI Direct. "HCLTech and Tier 2 companies have been guiding for a double-digit growth which remains to be seen since the scope for macro revival is minimal."

Brokerage Nomura said it has maintained its cautious stance on the sector after Accenture's results.

"...discretionary demand is unlikely to recover meaningfully in 2HFY24F, and possibly FY25F for the India IT industry," said Nomura's analysts Abhishek Bhandari and Krish Beriwal in a client note.

Analysts said that there were expectations of a recovery in the second half of FY24, but the Accenture results have pushed the hopes of recovery.

The Nifty IT index gained 13.2% in the past three months. JM Financial said "some reversal" in the index after the up-move is in order.