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Accenture’s 1QFY24 growth albeit within its guided band was the slowest since the pandemic and interestingly, incremental deceleration over the past couple of quarters has come from Managed Services, a closer proxy for India IT Services demand, JM Financial Institutional Securities said in a report.

A soft 2Q guide despite a favourable comp, suggest trend reversal, if any, would be back-ended. In fact, lower end of Accenture’s FY24 organic growth guidance (now slightly below 0-3 per cent) implies no improvement even in 2H.

Management indicated no change in demand environment – persistent weakness in BFS, CMT and discretionary spend. Budget conversations, though not concluded, are still revolving around spend reprioritisation. Even genAI spends are not incremental. These point to a flattish 2024 IT budgets, the report said.

Fed-pivot has raised hopes of demand inflection in the sector. But no visible green shoots, as indicated by Accenture mean expectations (and multiples) are running ahead of fundamentals. That could be a risk, the said.

“A likely weak discretionary demand environment is negative for Infosys, in our view. Incremental weakness in the UK could have negative implications for TCS, even though TCS’ exposure in UK is skewed towards Insurance and Public Services, in our view. Another quarter of double digit decline in CMT is negative for Tech Mahindra”, the report said.

“Sharp up-move in India IT Services stock after Fed’s recent dovish comments is implying faster demand inflection than what Accenture commentary indicates. Even Indian IT players’ 3QFY24 commentary will likely be cautious, in our view. Market’s optimism in that context appears a bit pre-mature. We will await better evidence”, it added.