No recovery in sight for Indian IT as analysts remain cautious post Accenture results

The September quarter is also likely to be weak for Indian IT companies as growth challenges persist. This was the key takeaway from all analyst commentary post Accenture's results on Thursday.

Global IT services firm Accenture reported results on Thursday evening where it cut the upper end of its revenue growth guidance band to 8-9 percent from 8-10 percent earlier. It now expects 2-6 percent Constant Currency growth in the fourth quarter, compared to 6-10 percent earlier.

Accenture's full year and fourth quarter guidance indicates the tough macro environment that currently exists and also implies no growth recovery into the year-end, which means the September quarter should also be weak for Indian IT, brokerage firm JPMorgan wrote in a note.

JPMorgan further said that weakness in the US market is negative for all of Indian IT as it is the biggest geography, but particularly negative for Infosys, Wipro, HCLTech, LTIMindtree, Mphasis and Persistent Systems.

The brokerage has been one of the most bearish on the street for Indian IT companies despite the sector recovering from the lows and the recent run-up that it has had.

Morgan Stanley has also maintained a cautious stance on the sector as Accenture's results confirm concerns of a slowdown in small deals and projects for Indian IT vendors.

Recent channel checks done by Jefferies point to a worsening demand outlook for Indian IT companies with discretionary IT spending still under pressure and the June quarter likely to turn out to be softer than expected.

Jefferies has gone on to cut growth estimates for the financial year 2024 by 50-150 basis points and further cut the financial year 2024-2026 Earnings per Share estimates by 4 percent. Rising risks to demand recovery in the second half of the financial year 2024 may lead to further de-rating in stocks, the brokerage said.

The Nifty IT index is currently flat for 2023 after having recovered from the lows. Underperformance is coming from stocks like Infosys, which are still down by nearly 16 percent on a year-to-date basis.