Indian IT Stocks TCS, Infosys, Wipro In Focus After Accenture Warns Of Weaker IT Spending Ahead

Indian tech biggies Tata Consultancy Services (TCS), Infosys, Wipro, HCL Tech, and Tech Mahindra among others will be in the limelight on Friday after Irish-American professional services company, Accenture warned of weaker IT spending in the coming quarters. The Dublin-headquartered tech firm's full-year FY24 and first-quarter revenue forecasts are below Wall Street estimates already.

For the first quarter of fiscal 2024, Accenture expects revenues to be in the range of $15.85 billion to $16.45 billion, or -2% to 2% in local currency, reflecting the company's assumption of a positive 2.5% foreign-exchange impact compared with the first quarter of fiscal 2023.

This is below the forecast of $16.43 billion revenue by analysts poll led by LSEG, Reuters reported. Accenture's lower-than-expected revenue forecasts hint that high inflation and interest rates could squeeze enterprise spending through next year.

Reuters also quoted Accenture CEO Julie Sweet who said, "We have seen greater caution globally with lower discretionary spend, slower decision-making, and in particular for us, a significant impact from the challenges the communications, media and tech industries (CMT) have faced."

As per the financial result report, Accenture recorded a 12% decline in the Communications, Media & Technology (CMT) segment to $2.71 billion in both U.S. dollars and local currency compared with the fourth quarter of fiscal 2022. CMT was the only industry group that underperformed in Accenture's book compared to 3% YoY growth in financial services, a 13% upside in health & public services, a 6% jump in products, and a 10% growth in resources.

Further, for fiscal year 2024, Accenture's business outlook for the full 2024 fiscal year assumes that the foreign-exchange impact on its results in U.S. dollars will be flat compared with fiscal 2023.

In 2024, the company expects revenue growth to be in the range of 2% to 5% in local currency.

While GAAP operating margin is expected in the range of 14.8% to 15.0%, an expansion of 110 to 130 basis points from fiscal 2023, and adjusted operating margin, which excludes an estimated $450 million for business optimization costs, to be in the range of 15.5% to 15.7%, an expansion of 10 to 30 basis points from fiscal 2023.

Also, Accenture estimates both its GAAP and adjusted annual effective tax rate, which excludes the
tax impacts of business optimization costs, to be in the range of 23.5% to 25.5%. Diluted EPS is seen in the range of $11.41 to $11.76, an increase of 6% to 9% over fiscal 2023.

Lastly, the company expects operating cash flow to be in the range of $9.3 billion to $9.9 billion; property and equipment additions to be $600 million; and free cash flow to be in the range of $8.7 billion to $9.3 billion. It also expects to return at least $7.7 billion in cash to shareholders through dividends and share repurchases.

Although based in Ireland, Accenture's earnings set the tone for future growth prospects for Indian IT companies. More than 40% of its global workforce is from India. As per the factsheet of Accenture, as of August 2023, the company had a total headcount of 733,000 employees in more than 120 countries. Last year, it was revealed that over 300,000 employees out of 7 lakh were from India. However, Accenture's employee base could vary in India as many IT firms have carried layoffs since the start of 2023.

Nevertheless, Accenture's earnings do give a sneak peek of what to expect from Indian IT giants.

During the June 2023 quarterly results announcement, the second largest IT firm, Infosys nearly halved its FY24 revenue guidance was revised to 1.0%-3.5% from earlier 4-7% owing to an increasingly challenging demand environment.

Meanwhile, peers like TCS, Wipro and HCL Tech have given cautious FY24 guidance. TCS revised its FY24 revenue guidance to 5% in July against the earlier 7% guidance. Similarly, Wipro expects constant currency revenue from its IT services business segment to range from $2,722 million to $2,805 million in FY24, which indicates a 2% drop or 1% improvement from earlier forecasts. HCL Tech, however, has retained its 6-8% constant currency revenue forecasts for FY24, while services revenue growth is seen ranging from 6.5-8.5%.