Infosys, TCS, HCLTech shares drop as much as 5%: Here are five factors behind the fall

Shares of Infosys, TCS, HCLTech, Wipro, Tech Mahindra and LTIMindtree, the six constituents of the Nifty 50 index are trading with losses between 3% to 5% after Accenture cut its financial year 2024 revenue growth guidance on Thursday.

HCLTech is the biggest loser among the pack, trading with losses of over 5%, marking its biggest single-day drop in 15 months.

Accenture now expects its topline for the full year to grow between 1% to 3% from 2% to 5% earlier.

It is seeing further cuts in short-cycle discretionary projects and clients continue to prioritise investing in large-scale transformations, while limiting discretionary spends in smaller projects.

The market was anticipating a near double-digit growth for Indian IT in financial year 2025. On the flip side, Accenture expects outsourcing revenue growth to be mid single-digits in financial year 2024. This weak guidance from the company has raised questions on the pace of the recovery. As a result, Infosys and HCLTech can begin the year with cautious guidance.

CLSA: Sharp downward revision in Accenture guidance implies no major pick up in the second half. This is in-line with the brokerage's channel check. Indian IT commentary and outlook for BFSI, telecom, still weak. The brokerage remains cautious on the sector and has reiterated its "sell" recommendation on Wipro, HCLTech, TCS and LTIMindtree.

Morgan Stanley: Accenture's guidance cut and cautious commentary has raised concerns on the pace of revenue recovery for Indian IT. However, the brokerage has maintained its view of the industry bottoming out on year-on-year growth. It also said that the financial year 2025 consensus revenue forecast is at risk.

Nomura: The brokerage has also retained its cautious stance on the sector as a revival in the discretionary segment is still away. It remains selective with a "buy" recommendation on Tech Mahindra among the largecaps and a "reduce" rating on TCS, Wipro, LTIMindtree, L&T Tech and Mphasis. Among Midcap IT names, it has a "buy" rating on Coforge, Birlasoft and eClerx.

The Nifty IT index has turned negative for the year after Friday's drop. LTIMindtree is the biggest laggard this year, declining 21%, while Mphasis and Coforge are down between 12% to 13%.