IT stocks take a hit after Accenture signals slowdown in client spending

Indian IT stocks traded lower on Monday after IT bellwether Accenture indicated a slowdown in client spending. Shares of Tata Consultancy Services (TCS), India's largest software services company, fell 1.24% intraday to ₹3,199 apiece on the National Stock Exchange (NSE). Infosys, too, cracked 1% to hit an intraday low of ₹1,500 on the NSE.

On Friday, Accenture Plc reported a revenue of $15.7 billion for the quarter ended November 30, 2022, an increase of 5% in US dollars and 15% in local currency over the same period last year. But its weak outlook overshadowed higher-than-expected earnings.

Customers "are more and more focused on cost resilience and many of them are having to make really hard choices," Accenture chief executive Julie Sweet said in a post-earnings conference call.

"There continues to be significant economic and geopolitical uncertainty in many markets around the world, which has impacted and may continue to impact our business, particularly with regard to wage inflation and increased volatility in foreign currency exchange rates. In some cases, these conditions have slowed the pace and level of client spending," Accenture said in a regulatory filing.

New bookings for Accenture in the first quarter were $16.22 billion, a 3% decrease in US dollar. Accenture forecasts revenue in the range $15.20 billion to $15.75 billion for the current quarter, slightly below analysts' estimates. The IT behemoth maintained its annual revenue growth guidance of 8-11% in constant currency terms. This, according to foreign brokerage Nomura, indicates moderation in demand. "We maintain our cautious stance on the demand outlook and think consensus' revenue growth estimates for FY24E may see downward revisions," Nomura said in its outlook on Indian IT companies.

Accenture witnessed a sharp decline in employee attrition. For the first quarter of fiscal 2023, annualized voluntary attrition, excluding involuntary terminations, was 13%, down from 17% in the first quarter of fiscal 2022.

Amid the economic slowdown, IT research company Gartner forecasts worldwide government IT spending to grow 6.8% to $588.9 billion in 2023. Government organisations are continuing to modernise legacy IT and invest in initiatives that improve access to digital services as constituents increasingly demand experiences that are equivalent to online customer interactions in the private sector, said Daniel Snyder, director analyst at Gartner.

In 2023, government IT spending is forecast to increase across all segments except devices, as government end-users extend the useful life of their devices that were acquired at the onset of the pandemic, the Gartner report says. Software will be the highest growing segment in 2023 followed by IT services and internal services, it adds.

In an interaction with Fortune India last week, Debjani Ghosh, president of the National Association of Software & Services Companies (NASSCOM), said that tech spending will continue to grow in the next 12 to 18 months. "Whenever there is a threat of recession, spending on digitisation and technology actually starts going up," she said.

"There is a bit of a shift that happens in such cases where companies may move funding from a lot of the newer projects, the more futuristic projects, but they will start investing much more on just solidifying the mainstream processes," Ghosh added.