Why Accenture's forecast triggered massive selloff of IT stocks
Infosys led the crash with a slump of over 8 pc; negative sentiment also triggered a selloff in ADRs of Indian IT companies
Indians IT stocks crashed on Friday (June 19) after global technology giant Accenture trimmed the upper end of its annual revenue growth forecast and predicted a weaker-than-expected outlook, raising fresh concerns about demand in key overseas markets.
The forecast, which triggered a broad-based selloff across IT services and consulting companies across the globe, erased over 1.35 lakh crore in market value in a single trading session from major IT stocks, including those of Infosys, TCS, and HCLTech.
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The Nifty IT index, which tanked 6 per cent, was the worst-performing sectoral index of the day. Leading the selloff was Infosys with a drop of 7.59 per cent (Rs 1,041.9), while TCS fell by 5.46 per cent (to Rs 2,082.9). HCLTech was down by 4.31 to Rs 1,111.7 while Tech Mahindra slumped by 4.41 per cent to Rs 1,383.9 and Wipro fell to 3.38 per cent (to 176.66).
What triggered the selloff?
The stocks crashed after Accenture cut the top end its annual revenue forecast by 100 basis points and revised the range to 3-4 per cent from the earlier 3-5 per cent. The company’s forecast was a result of concerns that global enterprisers, mostly in the US, may continue to remain cautious on discretionary technology spending, which remains a major driver for Indian IT service firms.
According to data by LSEG, the company projected the revenue in the range of $17.75 billion to $18.4 billion, below an estimate of $18.47 billion made by analysts, for the fourth quarter.
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Accenture also said that the Middle East conflict resulted in a $400 million impact on its regional business in the third quarter and more is expected in the fourth.
Accenture’s own shares fell by over 17 per cent after the company published its quarterly earnings.
Global tech stocks
A sell-off was also witnessed in the American Depositary Receipts (ADRs) of Indian IT companies amid Accenture’s prediction. ADRs, certificates traded on US stock exchanges, represent shares of non-US companies and enable American investors to buy and sell foreign stocks without having to directly trade in the overseas market.
On the New York Stock Exchange, the ADRs of Infosys and Wipro fell by at least 10 per cent soon after Accenture released its forecast. Similarly, ADRs of Cognizant fell by over 10 per cent, while that of IBM slumped by over 5 per cent.
Uncertainties over tech spending, advent of AI
Industry experts attributed the crash in stocks to uncertainties over technology spending recovery. Despite IT companies landing healthy deals in recent quarters, the same is taking time to translate into revenue as clients are sceptic about budget and are delaying discretionary projects.
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Investors are also worried that advances in generative AI could reduce the dependence on conventional IT services.