The Q4 and FY results season for Indian IT companies is around the corner. Will it be a hit or miss? Do Accenture results announced a fortnight earlier provide any guidance? In this edition, let’s delve into some intriguing data points.
Accenture reported its second-quarter fiscal 2024 results on March 21, 2024. What caught investors by surprise was the gloomy business outlook. For fiscal 2024, the company now expects revenue growth to be in the range of 1% to 3% in local currency, compared to 2% to 5% previously.
So, how did the stock markets react to this?
Accenture stock fell sharply on results day. The very next day, on the back of the Accenture Q2 results, the Nifty IT index (a composition of the top 10 listed IT companies by market capitalization) fell 2.33% in India on March 22, 2024.
Even if we look at forecasts of Indian IT companies, so far in FY 24, Infosys adjusted its guidance several times, with Q1 seeing a projected revenue growth of 1%-3.5% in constant currency, followed by Q2 expecting growth of 1%-2.5%, and Q3 anticipating growth within the range of 1.5%-2.0% in constant currency.
Even if we look at forecasts of Indian IT companies, so far in FY 24, Infosys adjusted its guidance several times, with Q1 seeing a projected revenue growth of 1%-3.5% in constant currency, followed by Q2 expecting growth of 1%-2.5%, and Q3 anticipating growth within the range of 1.5%-2.0% in constant currency.
How does this bode for Indian IT companies? They are due to announce FY 2024 results in April 2024.
We examine Accenture, TCS, and Infosys’s past performance to see if there is a trend. This study examines TCS and Infosys only. Together, they account for 52% of the Nifty IT Index.
Data Collection:
Data spans over 45 quarters from December 19, 2012, translating to Q1 FY 2013 for Accenture until December 19, 2023, Q1 FY 24. Accenture follows a September to August calendar time frame, while TCS and Infosys use an April to March calendar. The graph has been calibrated with real-time frames, designed in such a way that Accenture’s result and subsequent TCS and Infosys results announced a fortnight or so later are captured accordingly.
Accenture, TCS and Infosys revenues by Qtr, $Bn
So, what does the data say?
There is a high degree of correlation between Accenture, TCS and Infosys results, albeit with a little lag QoQ.
We observe different patterns pre-COVID and post-COVID in standard deviation charts across revenues and share prices.
Revenues:
- Pre-COVID: Accenture had a near-perfect alignment with the mean, with a lesser spread, followed by Infosys and TCS. This means higher predictability and lesser volatility.
- Post-COVID: There is a uniform pattern of higher spreads with lower peaks across Accenture, TCS, and Infosys. This indicates lower predictability and higher volatility.
Share Prices:
- Pre-COVID: Infosys had a near-perfect alignment, followed by Accenture and TCS.
- Post-COVID: The revenues chart post-COVID shows a similar observation: higher spreads with lower peaks across Accenture, TCS, and Infosys.
Conclusion:
IT Services companies are all growing, but individual company performance might vary, and the rate at which they are growing differs.
Clients have spent significantly during the COVID-19 time frame to upgrade their digital capabilities, causing a near-term drag on discretionary spending. In fact, COVID has been a spoiler to revenue predictability. The post-COVID phenomenon is seeing enterprises spend less on discretionary spending.
Leaders from leading IT companies have called out the ongoing softness in near-term demand due to macro uncertainties and geopolitical volatility. Unless these macroeconomic scenarios change, achieving the pre-COVID rate of growth will remain a challenge.
Watch out for Europe revenues—Accenture announced a 2% dip in its EMEA-based revenue. However, per the analysis of Infosys, TCS, Wipro, Tech M, and HCL Tech’s press releases in January and February 2024, of the 8 wins announced by the top companies, 7 were from EMEA. (Click here to read more about the analysis of Press Releases.) This indicates deal momentum and a contra trend for Indian IT players.
Will the fall be more? It looks like the markets would have already factored in the bad news by the time the results hit the wire. The road to recovery to pre-COVID revenues is still a few years away.
As Shelby M.C. Davis says, “History provides a crucial insight regarding market crises: they are inevitable, painful, and ultimately surmountable.”
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