Accenture’s muted quarterly results indicate near term demand challenges for Indian IT

Accenture’s muted results for Q3FY24 indicate that the IT sector continues to face challenges in the near term. Reacting to Accenture’s results, analysts reported that tech spends are not expected to come back in the near term although they remain optimistic about their long term prospects. 

For Indian IT firms, this means a poor demand environment for the next few months. Axis Securities said in its note on Friday, “IT services companies in India are receiving strong deal bookings despite near-term challenges. While we remain optimistic about the long-term prospects of IT services companies in India, near-term challenges may impact their earnings growth momentum.”

The brokerage firm noted that IT services are definitely facing near-term challenges on account of rising inflation rates and potential slowdowns although technological transformations like GenAI has ensured that the medium and long term outlook remains intact. 

strong booking

Nomura was a bit more pessimistic noting that discretionary tech spends are not expected to recover in FY25. It said, “We believe discretionary demand is unlikely to recover meaningfully in FY25F for India IT, and therefore, maintain our cautious stance. While revenue growth for large-caps should improve in FY25F (+2.9 per cent y-o-y) vs FY24F (+1.3 per cent y-o-y), we expect it to be driven by cost take-out deals. We expect operating performance to vary across our coverage universe in FY25-26F.”

Kotak indicated that strong booking numbers may spur buoyancy into the Indian IT sector, “Indian IT stocks have largely held firm despite a muted demand environment for the past several quarters. While stock prices of Accenture, EPAM, Globant and Endava have gone up post Accenture’s results, do note that multiples for such stocks de-rated considerably unlike Indian IT. Accenture is still down 11- 12 per cent CY2024 YTD despite the strong up-move. Strong bookings numbers and acceleration in growth rates from a decline to a positive aided by inorganic growth may spur some excitement given the buoyancy of the sector on any positive indications on demand”

According to Emkay Global, the management commentary on the demand environment was largely unchanged, with clients continuing to limit discretionary spending and the delay in decision-making persisting, particularly for smaller deals. “However, the company maintained the mid-point of its guidance; this points to a broadly stable demand environment. Also, Q4 guidance of 2-6 per cent growth in LC indicates a steady FY24 exit. The stability bodes well for Indian IT companies, even as a full-fledged recovery is now expected in CY25/FY26,” it added.