Indian information technology stocks fell as much as 3% on June 23, after shares of Accenture slid 7% on the US bourses on Friday. The stocks fell today despite Accenture reporting better-than-expected revenue for the third quarter, raising concerns over future demand trends and sector sentiment.
The IT company's revenue was $17.7bn, up 7% from the year-ago quarter. This was more than the average estimate of $17.30bn. Apart from this the company also reported an 80 basis points year-on-year expansion in the operating profit margin. Its diluted earnings per share for the quarter surged 15% on year, and the company generated a free cash flow of $3.5bn during the period.
Accenture has narrowed its full-year revenue growth guidance to 6-7% in local currency, compared to 5-7% earlier. The company has also updated its foreign exchange impact forecast, now projecting a positive 0.2% effect. Accenture has also flagged headwinds from a sluggish US federal contracting environment. While this has not materially impacted operations yet, it has taken a toll over investor confidence, the company noted.
Accenture Q3 earnings triggered a broader reaction as Infosys American Depository Receipts (ADRs) slipped 4%, while Wipro ADRs were down 0.3%, reflecting early signs of pressure that could spill over to the Indian stock market today.
Global brokerage firms CLSA and Morgan Stanley believe the current environment is challenging for the Indian IT companies as the discretionary IT spending remains soft, especially in segments such as retail and automotive. Although the recent rebound in Nifty IT reflects investors’ interest, the reality across the sector’s core verticals remains tepid.
Any turnaround in the sector will likely be gradual, uneven, and selective, Morgan Stanley said, adding that the IT companies are currently dealing with weak deal pipelines and limited demand recovery.
HCL Technologies, Tata Consultancy Services, and Infosys fell 1.6-3% to touch their respective intraday lows on the National Stock Exchange today. Overall the Nifty IT index fell up to 1% to its intraday low of 38,278.70.
