Infy, Tech Mahindra, LTIMindtree fall on Accenture's muted FY24 guidance

Shares of IT heavyweights such as Infosys, Tech Mahindra, and LTIMindtree witnessed selling pressure on Friday after the U.S.-based IT major Accenture reported muted earnings in the fourth quarter. The sentiment was further dented after the Irish-American professional services company, which follows a September-August financial year, gave a bleak revenue growth guidance of 2-5% year-on-year (YoY) in constant currency terms (CC) for the financial  year 2023-24 (FY24).

LTIMindtree, the merged entity of Larsen & Toubro Infotech (LTI) and Mindtree, was the top loser in the IT space with a loss of 1%, while sectoral leaders Infosys and Tech Mahindra were trading in negative terrain with marginal losses. Among small and mid-sized IT firms, Sonata Software, Quick Heal Technologies, C.E. Info Systems, Cerebra Integrated Technologies, and 3i Infotech declined up to 2.5%.

Bucking the trend, Tata Consultancy Services (TCS), the country’s most valued tech firm, rose over 0.6%, while Wipro and HCL Technologies gained up to 0.5%.

Accenture on Thursday released its earnings report for the fourth quarter and full fiscal year ended August 31, 2023, which was below street expectations on all financial and operational terms. The revenue for the quarter stood at $15.98 billion, registering a year-on-year growth of 3.6%. It posted GAAP earnings per share (EPS) of $2.15 for the quarter while adjusted EPS stood at $2.71, registering 9% YoY growth. The company bagged new bookings at the $16.6 billion, up 1% YoY.

The management pegged revenue growth guidance for Q1FY24 in the range of $15.85-$16.45 billion, implying a growth of -2% to +2% YoY in cc terms.

“The management has given lower guidance for FY24 revenue growth guidance to 2%-5% indicating sluggish growth in FY24 aided by uncertainty in macroeconomic conditions and spending delays. The guidance does not factor any macro improvement and bakes in a low single digit growth for Consulting and mid to high single digit for Managed Services,” according to Axis Securities.

The domestic brokerage, in its report, said  IT services are facing the near term challenges because of the rising inflation rates and potential slowdown but long term outlook still remains intact due to massive technological shift and rising dependancy on the systems.

On impact on Indian IT services companies, the report noted that “near term macroeconomic headwinds will may impact the automation spend across verticals”, but “strong investments in Digital Technologies, Cloud Transformation, IoT, Generative AI, and Machine Learning across verticals will support and accelerate companies’ revenue growth moving forward in long run”.

“On a vertical front, the BFSI vertical witnessed a stronger impact due to a fall in the rural banking sector from North America. Moreover, the Automobile, Retail, Pharmaceutical and healthcare industry is witnessing strong traction across geographies. IT services companies in India are receiving strong deal bookings despite having near-term challenges,” the report highlighted.

The brokerage remains optimistic about the IT services companies in India over the long term, adding that near-term challenges may impact earnings growth momentum.

DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.