The tepid growth guidance of 2-5% in FY24 by Accenture will adversely impact Indian IT firms like Wipro, Tech Mahindra and LTI Mindtree, according to analysts.
While Wipro will be impacted due to the weakness in the consulting business, TechM and LTIM will face pressures on account of weakening demand in the communications, media and technology (CMT) vertical.
Further, Accenture’s weakest quarterly performance in North America in the recent past will also create pressures on other domestic IT firms as around 55% of their revenues come from the North American region.
“Sharp moderation in deal booking not only in consulting but also in managed services suggests rising scrutiny on IT spends. Limited growth in consulting bookings/revenues could be seen negatively for Wipro. Muted outlook for North America and communications vertical offers negative read-throughs for TechM, and LTIM,” analysts at Jefferies wrote in their report.
Analysts at Kotak Institutional Equities wrote that Accenture’s results and guidance reiterate continued weakness in discretionary spending, even as enterprises are willing to invest in core modernisation and cloud migration.
“Players with higher exposure to telecom (TechM) and consulting (Wipro) will be impacted more. North America geo continues to be under pressure compared to Europe. Caution on the macro is leading to clients looking for cost savings to fund transformation programmes,” analysts at Kotak added.
Accenture saw its North American region’s revenue growth rate fall from 26% y-o-y in Q1 FY22 to a meagre 1% y-o-y in the August ending quarter of FY23.
“Given Accenture’s full year guidance is a first peek into potential growth trajectory for FY25, we see its underwhelming guidance as an incremental negative for the sector,” JM Financial analysts wrote in a note.
According to Nomura, the guidance for FY24 is lower than pre-pandemic levels of 5-8% for FY17-20.
Accenture noted that while the long-term technology spending trends remain intact, client caution due to macro uncertainties is weighing on tech spending in the near term. Clients continue to prioritise cost take out projects and discretionary demand remains weak.
Accenture follows September-August financial year. Compared to North America’s 1% growth, Europe and growth market grew 7% and 6% y-o-y in the last quarter of FY23, respectively.
Analysts said that of late Indian IT companies facing headwinds in North America, have been actively seeking businesses in Europe, Africa, Middle East and Australia.
In line with Accenture’s high growth in Europe and “growth markets”, Indian IT companies like TCS and Infosys have sealed back to back deals from African banks recently.
While HCLTech bagged a deal from ANZ bank, apart from expanding its partnership with Cricket Australia, Wipro in June announced the inauguration of its new office at Sable Park, Century City, in Cape Town, underscoring its commitment to clients in the region.
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