Morgan Stanley keeps 'moderate' outlook for IT services in Q4, touts weakness in US

Tech giant Accenture cut its revenue guidance on March 21.

International brokerage Morgan Stanley has a 'moderate' outlook for the managed IT services space because of weakness in the US banking, financial services and insurance sector.

The demand for cloud services sees an upswing, but Morgan Stanley said that the flow through benefit on IT services is yet to be seen. The generative AI space is an opportunity for providers, but is currently being funded by the re-prioritisation of spending and divergence of funds from other projects.

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On March 21, tech giant Accenture cut its revenue guidance, as an uncertain economy prompts clients to curtail spending on its consulting services. As a result, Indian IT services stocks crashed in trade as pessimism clouded the sector.

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.

Overall, the consensus opinion for the domestic IT spaces projected that Indian tech firms might see a sequential improvement in their fiscal fourth quarter earnings, but the growth will still be muted, as IT budgets and discretionary spending in the US remain tight.

Margins are likely to improve a little for the sector, helped by continued cost-control measures and moderating attrition, barring specific cases such as Infosys, HCL Tech and Wipro.

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