IT stocks volatile post Accenture earnings; what should investors do?

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Accenture warns of first-quarter revenue below estimates as IT spending remains under pressure (Exciting news! Mint is now on WhatsApp Channels. Subscribe today by clicking the link and stay updated with the latest financial insights! Click here!) Experts underscore that Accenture's fourth-quarter performance and Q1FY24 outlook have raised concerns about the Indian IT sector over the near-term demand environment. "Accenture's management highlighted CMT (communications and media consulting) and North America as the key weak area, which we see as negative for Tech Mahindra (about 40 per cent communications exposure).

In our view, Accenture's commentary implies near-term weakness for Indian IT companies," said Motilal Oswal Financial Services. Kotak Institutional Equities pointed out that Accenture's results and guidance once again highlighted continued weakness in discretionary spending even as enterprises are willing to invest in core modernisation and cloud migration. Kotak believes Indian IT players with higher exposure to telecom (Tech Mahindra) and consulting (Wipro) will be impacted more.

The brokerage firm underscored that North America continues to be under pressure compared to Europe. Caution on the macro is leading to clients looking for cost savings to fund transformation programs. "The read-through for Indian IT is negative where discretionary spending remains weak.

Cost take-outs are the dominant source of demand," said Kotak. Timeline for a macro improvement is difficult to predict, said Kotak as it expects the current scenario to continue in the second half of the financial year (2HFY24) and some uptick in discretionary spending in FY25 especially in BFSI and hi-tech verticals. Kotak forecasts a muted