IT sector clients continue to remain cautious about spending decisions
BENGALURU: Amid the uncertain economic environment, Accenture has cut its fiscal 2024 revenue forecast and this indicates that clients remain cautious about spending decisions.
Accenture, a key peer of Indian IT services companies, reported revenues for the second quarter of FY24 at $15.8 billion. “The company gave weak 3Q revenue growth guidance of (1%)-3% YoY CC and lowered corresponding FY24 guidance to 1.0%-3.0% (vs. 2.0%-5.0% last quarter). Assuming 3Q growth near the top end, this implies a modest exit to FY24 of 6.0% YoY CC growth for Accenture despite a low base and inorganic support,” said Motilal Oswal Financial Services in its report.
“Our discussions with Indian IT peers echoed the cautious spending environment in the near term, which should drag down FY24 operational performance for them,” it added.
Indian IT firms will announce their Q4 results next month starting with TCS on April 12. As per Emkay Global, Accenture’s management commentary and guidance cut reflect continued softness in near-term demand as clients remain cautious about spending decisions. “The guidance implies some acceleration in revenue growth in Q4 compared to flat to low single-digit growth in H1, assuming the mid-point of Q3 guidance. While ramp-up of large deal wins should aid growth in FY25 for select Indian companies, persisting weakness in discretionary spending puts our/consensus estimate of high single-digit growth for large caps at risk,” it said.
Infosys and HCLTech’s FY25 revenue guidance should reflect the cautious behaviour of clients in the near term, it added. But clients continue to invest big in Generative AI. Accenture has witnessed good interest from clients on Generative AI, with cumulative revenues of $1.1 billion during the first two quarters.
“The implications of Gen AI will become more pronounced and clients’ conversations are changing from POCs (proof of concept) to material rollout and integration of AI into their core operations,” Motilal Oswal said. Earlier ICRA said it expects revenue growth for IT firms in FY25 to remain tepid at 3-5% for the second consecutive year, given persistent macro-economic headwinds in key markets of the US and Europe, resulting in lower discretionary IT spends by corporates.