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

Item 1 of 6 Brokers trade at their computer terminals inside a stock brokerage firm in Mumbai, India, March 9, 2020. REUTERS/Francis Mascarenhas/File Photo

[1/6]Brokers trade at their computer terminals inside a stock brokerage firm in Mumbai, India, March 9, 2020. REUTERS/Francis Mascarenhas/File Photo Purchase Licensing Rights, opens new tab

BENGALURU, March 22 (Reuters) – Shares of Indian IT services firm tumbled more than 3% on Friday, a day after Accenture cut its fiscal 2024 revenue forecast, dashing hopes of a rebound in demand recovery.

The Nifty IT index (.NIFTIY), opens new tab fell 3.2%, with industry bellwethers Infosys (INFY.NS), opens new tab and Tata Consultancy Services (TCS.NS), opens new tab declining 3.5% and 2.7%, 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 U.S. 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% to 3%, from 2% to 5%, “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% since Infosys and TCS’s results in mid-January on hopes of improving fortunes, more than the benchmark Nifty 50 index’s (.NSEI), opens new tab 1.7% 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 a 26 times their earnings, which is a 13% premium to their five-year average and a 29% premium to the Nifty 50.

Reporting by Rama Venkat in Bengaluru; Editing by Savio D’Souza

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