BENGALURU – The Indian IT sector experienced a significant downturn on Friday, with shares of leading IT services companies falling sharply. This came in the wake of Accenture revising its revenue forecast downwards for fiscal 2024, dampening previously hopeful sentiments for a demand recovery in the industry.
The Nifty IT index witnessed a 3.2% decline, with major players Infosys and Tata Consultancy Services (TCS) experiencing drops of 3.5% and 2.7%, respectively. This downturn follows a period of cautious optimism sparked by better-than-expected quarterly results from these companies in January. These results had fueled hopes for a resurgence in demand from key banking, financial services, and insurance clients, particularly in the crucial U.S. market. However, Accenture’s recent adjustment of its revenue growth expectations from 2%-5% to a more modest 1%-3% has significantly tempered these expectations.
- Accenture’s Revised Forecast: The global consulting giant has lowered its fiscal 2024 revenue growth projection to 1%-3%, from its earlier estimate of 2%-5%.
- Impact on Indian IT Stocks: Following the announcement, the Nifty IT index fell by 3.2%, with significant losses for Infosys and TCS.
- Market Analysts’ Concerns: Analysts express concerns over the IT sector’s demand outlook and suggest that current valuations might be overly optimistic.
Market Reaction in Numbers:
| Company | Price Change (%) |
|---|---|
| Infosys | -3.5% |
| Tata Consultancy Services (TCS) | -2.7% |
| Nifty IT Index | -3.2% |
Ashwin Mehta of Ambit Capital noted that Accenture’s adjusted forecast “pours water on the rebound narrative,” highlighting the impact of continued constraints on client spending, slower decision-making, and a persisting pullback in smaller deals as significant negatives for the sector.
Despite a rise of 3.7% in the Nifty IT index since the mid-January results of Infosys and TCS, Accenture’s cautionary stance has raised alarms over the valuations of IT stocks. Analysts from Jefferies have voiced concerns, stating that “as the demand outlook for the IT sector seems to be worsening with no recovery in sight, Nifty IT valuations… seem rich.” They pointed out that IT stocks are currently trading at 26 times their earnings, a 13% premium over their five-year average, and a 29% premium compared to the Nifty 50 index, suggesting a reassessment of valuations might be in order given the uncertain demand outlook.
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