Indian IT services stocks crashed in trade on March 22 as pessimism clouded the sector, a day after tech giant Accenture cut its revenue guidance, as an uncertain economy prompts clients to curtail spending on its consulting services.
The Nifty IT index tanked over 3 percent, with all constituents trading with deep cuts around 9.30 am. The biggest losers in the index were HCL Tech, Mphasis, Persistent Systems that tanked over four percent each.
LTIMindtree shares hit a two-month low, while Infosys stock falls the most in eight-months. HCL Tech clocks the highest decline in 15 months, as trading volumes for all IT counters surged. Shares of Tech Mahindra slipped to an eight-week low.
Accenture has revised its full-year revenue growth projection at 1 percent to 3 percent from 2 percent to 5 percent. Overnight, the ADR (American Depository Receipt) shares of Infosys and Wipro ended lower on Wall Street on renewed pessimism for the domestic IT sector. Follow our market blog to catch all the live updates
Accenture has been grappling with sluggish demand for its IT and consulting services as high interest rates slam the brakes on an industry that grew at a breakneck speed during the Covid pandemic. The latest results hint at the economic uncertainty in global markets that is affecting consultancies and leading to layoffs or a freeze on hiring.
In an interview with CNBC-TV18, Manik Taneja, Axis Capital said, "This move will drive further cuts in terms of growth expectations for FY25 in domestic IT firms. Excitement had started to build up across names, similarly this disappointment will also percolate to almost all players in the sector."
Morgan Stanley said that Accenture's cut to its guidance for the fiscal year and its cautious commentary have raised concerns. There are some worries over the pace of the revenue recovery for Indian IT. The broker added that it retains the view that the pace of recovery could be slower than expected and that the revenue forecasts for FY25 are at risk.
CLSA added to the view, saying that the sharp downward revision in Accenture's guidance implied that there will be no major pick-up in the second half of FY24. The brokerage is cautious on the domestic IT sector, as it remains in an earnings downgrade cycle. However, this cycle has not been reflected in the current valuations.
Also Read | Accenture shares slump after cut in revenue guidance, sending Infosys ADR down 3.8%
Nomura retained a cautious stance, as discretionary revival was still not seen. The global brokerage reiterated its 'buy' call on Tech Mahindra in the large-cap space and on Coforge, Birlasoft and eClerx in the mid-cap zone. The agency is bearish on TCS, Wipro, LTIMindtree, L&T Tech and Mphasis.
Offering a contratry opinion, Nuvama Institutional Equities said that Accenture's guidance cut is a slightly negative for Indian IT services firms, "though not much".
"We believe FY25 Street estimates for Indian IT companies have been adequately rationalised, and have little downgrade risk, from current levels. We maintain our positive stance on the sector and expect a sustainable strong demand environment to drive strong earnings growth over the next three years," the domestic brokerage said.
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