IT firms mustn’t miss warning signals from Accenture

livemint.com:

In the IT services industry, Accenture doesn’t just make waves—it can create storms that either lift the boats of competitors or send them into a whirlpool. This past week, JPMorgan and other equity analysts have been mulling the fact that Accenture has issued a weaker than expected forecast. There has been a meaningful cut by the firm of its constant currency revenue growth guidance from 2–5% to an anaemic 1–3%.

This, say equity analysts, has been caused by a tight leash held by clients on discretionary spending. This throttles quickly converted small deals that drive a part of the business that contributes heavily to overall revenue. In the meanwhile, equity analysts claim that a large “transformational" deal pipeline is healthy for Accenture, but that there are delays in deal signing or a revenue ramp-up on already-signed deals.

There is also hope among analysts that the industry is cautiously optimistic, and they expect growth in the latter part of the year. In my opinion, the ripple effects of Accenture’s slowdown on Indian information technology (IT) service providers will be multi-faceted. First, let’s address investor sentiment.

The stock market is as much about perception as it is about performance. Given Accenture’s broad client base across industries and geographies, its forecast is often seen as a barometer for global IT spending. If it hints at a slowdown, it sets a narrative of caution across the sector, which can lead investors to recalibrate their expectations beyond Accenture too.