Wipro declined 1 per cent to Rs 378.10 while Tech Mahindra declined 2.28 per cent to Rs 1,094.10. The five stocks later covered a bit, but their combined m-cap was still down Rs 19,168.70 crore. 
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Wipro declined 1 per cent to Rs 378.10 while Tech Mahindra declined 2.28 per cent to Rs 1,094.10. The five stocks later covered a bit, but their combined m-cap was still down Rs 19,168.70 crore. Shares of tier I IT firms including Tata Consultancy Services (TCS) Ltd, Infosys Ltd, Wipro Ltd, HCL Technologies Ltd and Tech Mahindra Ltd (TechM) lost just over Rs 19,000 crore in market capitalisation, as they fell 1 per cent each, following lowering of the guidance by Accenture, only to recover some ground as the seen progressed.
The Accenture management marginally trimmed the upper end of the guidance for FY23 to 8-9 per cent from 8-10 per cent and expects growth to be in the range of 2-6 per cent in 4QFY23. The commentary raised concerns over the demand and pricing environment after recent cautious commentary by Cognizant, EPAM, Coforge and HCL Technologies. Analysts said while consensus estimates for revenue and earnings for FY24 have already been lowered for Indian IT Services companies, there could be risks to expectations of a strong rebound in FY25.
Accenture’s 3QFY23 growth (5 per cent YoY in CC), albeit within the guided band (3-7 per cent), reinforced underlying demand softness, said JM Financial which added that a decline in consulting growth (down 1 per cent YoY) in CC terms, the first in past nine quarters - led by lesser small deals sales, indicate intensifying pressure on discretionary spend.
"From a read-through for Indian IT perspective, outlook till Aug-23 provides little incremental information, as softness in 1HFY23 is already anticipated. However, weakness in discretionary, CMT and North America has negative implication for players with higher exposure to these segments, especially LTIMindtree, Persistent Systems and Tech Mahindra. Higher exposure to discretionary put Infosys at risk as well," it said.
Generating returns in India listed companies, after a sharp stock price rally post 4QFY23 results, will be a challenge, said Kotak Institutional Equities as it still funds Infosys attractive, followed by HCL Technologies.
Shares of TCS, the largest IT firm, fell 0.92 per cent to hit a low of Rs 3,209 apiece on BSE. Infosys, the second largest in terms of sales, fell 1.36 per cent to a low of Rs 1,265.15. HCL Technologies slipped 1.04 per cent to Rs 1,151.15. Wipro declined 1 per cent to Rs 378.10 while Tech Mahindra declined 2.28 per cent to Rs 1,094.10. The five stocks later covered a bit, but their combined m-cap was still down Rs 19,168.70 crore to Rs 23,32,827 crore against Rs 23,51,995 crore at Thursday's closing.
"We believe the Street is not taking this into account and could weigh on margins in FY24. In our models, we have assumed modest pricing pressure, but we believe this could be a bigger issue as we go into H2FY24," said Nirmal Bang Institutional Equities.
Nomura India remained concerned on the demand outlook for Indian IT services and expects 480 bps slower revenue growth at 6.1 per cent for large cap IT firms in FY24. It expects operating performance to vary significantly across companies in FY24 and prefers Tech Mahindra in large caps and Coforge in mid-caps. It maintained its 'Reduce' rating on TCS.
"Lowering of revenue guidance by Accenture indicates continued softening demand for IT services. Moderating deal bookings momentum (due to lower-than-expected smaller duration projects) and cut in total headcount indicate rising near-term demand uncertainty for the industry, in our view," Nomura India said.
Motilal Oswal Securities said the near-term uncertainty continues to pose challenges on growth visibility of key verticals (Financial Service and CMT) and geography (North America). It remains selective on tier-1 names and prefer TCS followed by HCL Technologies and Infosys.
"In the near term, we believe it's safer to play a sector with large-caps where valuations are closer to 10-year average multiples now. Among mid-caps we should be selective and prefer stocks with solid deal momentum like Coforge and Persistent Systems. We prefer to stay away from ER&D space such as LTTS and Cyient in the near term," it said.
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