Accenture’s guidance signals gloomy H2

Starting in North America, people are not doing smaller systems integration. They’re not doing smaller strategy and consulting. They’re prioritizing and focusing on larger deals. And even there, there’s prioritizing - Julie Sweet, CEO of Accenture, said during the analyst call

Alarming Bells

♦ Accenture guided for 2-5% revenue growth in FY24

♦ Discretionary spend continues to be on hold

♦ Indian IT firms may not see early recovery in second half

Bengaluru: Global IT major Accenture’s full year guidance for next year dashes the hopes of second half recovery for Indian IT firms as slow decision-making and holding back on discretionary spend make the revival process difficult.

“Accenture’s guidance for Q1FY24/FY24 reflects a challenging demand environment in the near term and a conservative approach by management for growth prospects in H2, considering the prevailing macro uncertainties. Weak discretionary spending and slower decision-making amid macro uncertainties continue to weigh on demand,” JM Financial Institutional Securities said in a report.

Recently, Accenture has guided for a revenue growth in the range of 2-5 per cent in local currency for the FY24 fiscal. Accenture follows a September-August financial year cycle. The IT major’s earnings growth guidance of -2 to +2 per cent for Q1 FY24 is below estimates of 4 per cent.

“What’s not happening, is discretionary spend globally, as we saw throughout the year, starting in North America, people are not doing smaller systems integration. They’re not doing smaller strategy and consulting. They’re prioritizing and focusing on larger deals. And even there, there’s prioritizing,” Julie Sweet, CEO of Accenture, has said during the analyst call.

This has been seen across the outsourcing industry with many more large cost takeout deals coming the way of Indian IT firms. Infosys, TCS and HCL Tech have won several large deals in the July-September period.

While large cost optimisation deals are being bagged, small deals are getting slashed. According to Accenture’s management commentary, enterprises are not spending on digital deals enough so far, which was the mainstay of revenue growth during the pandemic and post-pandemic period.

“When it came to small deals, we didn’t see any change in thediscretionary spend environment,” Accenture has said.

Not only the hopes of recovery for Indian IT industry seem bleak during second half of FY24, if one goes by the Accenture guidance; it has also cast a doubt on growth prospects in FY25.

“Given Accenture’s full year guidance is a first peek into potential growth trajectory for FY25, we see its underwhelming guidance as an incremental negative for the sector. We continue to believe that the unwinding of excess IT spend could keep incremental revenue growth muted through FY24. If Accenture’s commentary is anything to go by, FY25 growth expectations could be at risk as well,” JM Financial said in its report.

Meanwhile, Indian IT services companies are all set to announce their second quarter results from October first week onwards, which will set the stage for growth guidance in the second half of current financial year.