Indian IT stocks tumble as Accenture 'pours water' on hopes of rebound in demand

The Nifty IT index has risen 3.7% since Infosys and TCS's results in mid-January on hopes of improving fortunes, more than the benchmark Nifty 50 index's 1.7% gain.

Bengaluru: Shares of Indian IT services firm tumbled more than 3 per cent on Friday, a day after Accenture cut its fiscal 2024 revenue forecast, dashing hopes of a rebound in demand recovery.

The Nifty IT index fell 3.2 per cent, with industry bellwethers Infosys and Tata Consultancy Services declining 3.5 per cent and 2.7 per cent, respectively.

The duo had posted better-than-feared quarterly results in January, sparking hopes of a revival in demand from banking, financial services and insurance clients, especially in the US key market, after over of a year of clients cutting budgets and delaying, or even cancelling, contracts.

But Accenture chopping its revenue growth forecast to 1 per cent to 3 per cent, from 2 per cent to 5 per cent, "pours water on the rebound narrative," Ashwin Mehta of Ambit Capital said in a note.

The company's "indication of a pullback in smaller deals persisting, more constraints on client spending and slow decision-making were negatives," Mehta said.

The Nifty IT index has risen 3.7 per cent since Infosys and TCS's results in mid-January on hopes of improving fortunes, more than the benchmark Nifty 50 index's 1.7 per cent gain.

But Accenture's warning has sparked concerns over the valuations of IT stocks.

"As the demand outlook for the IT sector seems to be worsening with no recovery in sight, Nifty IT valuations ... seem rich," Jefferies said in a note.

The brokerage noted IT stocks were trading at 26 times their earnings, which is a 13 per cent premium to their five-year average and a 29 per cent premium to the Nifty 50.