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Infosys hits 16-month low as IT stocks slump under margin pressure

Accenture Plc, whose fiscal year ends August 31, will announce its fourth quarter earnings after Indian markets hours on Thursday.

September 22, 2022 / 12:29 PM IST
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Shares of Infosys Ltd on Thursday dropped for six out of seven sessions hitting a 16-month low. The stock is down nearly 7.6 percent so far this September and year-to-date it lost around 27 percent.

The stock hit a low of Rs 1,360 a share - a level last seen on May 25, 2021 and fell as much as 0.8 percent. Meanwhile, TCS was down 6 percent month-to-date, Wipro lost 4 percent and Tech Mahindra erased 2 percent. Since start of the January, TCS fell over 19 percent, Wipro declined over 44 percent, while Tech Mahindra 41 percent.

IT stocks are under pressure amid margin worries as well as global economic uncertainties. All eyes are on Accenture's FY23 growth outlook which will set the tone for growth expectations for the overall IT services industry.

Accenture Plc, whose fiscal year ends August 31, will announce its fourth quarter earnings after Indian markets hours on Thursday. For Q4FY22, Bloomberg consensus estimates have pegged Accenture's revenue at $15.38 billion with a 14.7 percent year-on-year growth, which is within the guidance range of $15-15.5 billion (12-15.5 percent YoY growth). Margins are expected to come in at 14.7 percent for Q4FY22 and 15.2 percent for full year FY22 in line with guidance.

Analysts expect potential slowdown in a few of the world’s largest economies may result in clients cutting their discretionary spend. This may lead to a slowing in the IT services revenue growth momentum. This scenario may put short-term pressures on the Indian IT Services Industry. However, long-term IT spending still remains resilient, analysts added.

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The recent management commentaries from top IT firms and market expectation is that September 2022 quarter is going to be a sequentially strong quarter from a revenue growth perspective in constant currency terms. However, companies do not seem very confident about 2HFY23 and have not given out an explicitly strong demand commentary. The market is hoping that there will be no material negative surprises on the revenue front in 2HFY23, although it will likely be seasonally weak.

The recent hawkish Fed commentary and expectations of much tighter policy increased the risk of deep recession.

"We are in the shallow US recession camp and believe that it will lead to low-to-mid single digit dollar revenue growth for the Tier-1 Indian IT players, with Tier-2 sets growing at a high single digit rate. In our current estimates, we are not building in any pricing cuts, although we are taking a generous view on supply-side pressures in that year with attrition likely not being a big issue," said Nirmal Bang in its recent note.

Goldman Sach has downgraded its rating on TCS, Infosys and Tech Mahindra to sell citing a sharp cut in dollar revenue growth forecast for the IT sector.
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