US economic uncertainty clouds outlook for IT service providers: Sandip Agarwal

Time of India

8 hours ago

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ET Now: First up, how are you reading into Accenture's numbers because it is an IT bellwether. Usually, we use that as a benchmark of sorts when it comes to IT earnings in India as well. So, first up, how are you reading into the numbers, the revenue and the full year's guidance also has been revised from earlier 5% to 6-7% to now 6% to 7% and also there is a beat coming in on the revenue front. How are you looking at the numbers?
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ET Now: Also, like you mentioned that yes, the total bookings have been a disappointment for quarter three decline of 7%, how do you see this improving in the next quarter and what are perhaps going to be the triggers for the improvement?
ET Now: But since Accenture, like I mentioned at the start, it is some sort of, it is a bellwether that is this is sort of a benchmark that sets a precedence for Indian IT companies as well as far as their earnings are concerned. What can we make of that as far as Indian IT is concerned?
Sandip Agarwal, Sowilo Investment Managers, says people are not sure how the economy will take shape, whether there will be rate cut or not, whether there will be growth or not. So, there is lot of uncertainty even on the tariffs so because of that clients are not releasing their discretionary part of the budget and I think that is the biggest challenge because of which it is not percolating down in the confidence level of the management of the IT services companies. And I think till that clarity comes, no one can take a strong call.So, as you rightly mentioned that the current quarter numbers were better than estimates, but the challenge is that there are two challenges I see. One, the bookings are substantially weak because there is a 7% decline year-over-year in constant currency in bookings and also, surprisingly, even the outsourcing book is down 9% year-over-year, so that is one risk which I see.And second, the commentary if you read the fine print of the commentary on the call, the management has mentioned that they see more uncertainty in CY25. Now remember, this is a company whose year-end closes on 31st of August. So, we are talking another five months for which also there is no certainty.So, this spoils the guidance for the next year also, so that is the reason this stock is… I think that there will be some pressure on the stock and there will be a negative reading of this across the board because it is not about next one quarter where there is a weakness which is expected, I think it is more to do with the weakness which is percolating down to the next year for Accenture and also the whole story of second half can be better for India that also now there are question marks on that primarily because we already have December as a seasonally weak quarter followed by slightly better March quarter, because there is also less number of working days in February. So, the question is now whether FY26 will be bad for us and also Accenture next year guidance could be weak.So, honestly right now the amount of feedback which we are getting incrementally and the commentaries which we are reading from all the top clients of this IT service provider, it is nothing to do with the company or nothing to do with the service provider. It is all related to the volatility and the developments which are happening in the US.People are not sure how the economy will take shape, whether there will be rate cut or not, whether there will be growth or not. So, there is lot of uncertainty even on the tariffs so because of that clients are not releasing their discretionary part of the budget and I think that is the biggest challenge because of which it is not percolating down in the confidence level of the management of the IT services companies.And I think till that clarity comes, no one can take a strong call. So, worry is not about Accenture or any IT services company, worry is about clarity coming to the client themselves from the economy side or from the country side, so I think that is the challenge right now everyone is facing.So, till last quarter, we were very optimistic because we were seeing some pressure on consultancy and this discretionary uncertainty and all we understand because we do not have much exposure to that, but outsourcing or the managed services book was doing pretty well.This is the first time when we are seeing after long gap that there is a stress or there is a softness in the booking of the outsourcing side which is a sharp decline actually of 9.8% year-over-year. So, I think that is something which is more challenging and that definitely means that Indian IT companies will also have similar commentary of uncertainty going ahead.So, I think from that perspective, and we have recently seen lot of runup in the Indian IT stock, so we have to marry both the facts that on one side there is uncertainty which is coming from the IT bellwether and on the other side the stocks have done quite well in last two-three months. So, we have to see how investors take both the data points going forward.