Software & Services share price target

Capgemini (CAP) retained its guidance of 4-7% YoY CC growth for CY23, but now expects full-year growth at midpoint vs the above-midpoint expectation in the previous quarter. This is largely due to higher-than-expected softness in the US driven by weakness in key verticals – BFSI, telecom, technology, consumer goods and retail.

Scale-up: In January, 800 merchants contributed 50 retail transactions per day. Now 50K retail merchants are contributing 15K-20K transactions per day; additional 60K transactions per day in mobility.

ISG (a leading global technology research and advisory firm) conducted its Q2CY23 index call to discuss key technology trends and ordering activity across industry verticals and geographies.

As noted in Q4FY23, we believe consumption slowdown continued in Q1FY24E, in most B2C consumption categories. We think this is due to sustained consumer inflation and its impact on disposable income as ‘return to office’ continues to be implemented across the country.

Despite seasonality, Q1FY24 growth is likely to remain weak while margins are unlikely to surprise positively

Based on our discussion with IT company managements ahead of their silent period, we haven’t observed any significant change in their demand commentary over the last 3 months. Due to macro headwinds in key industry verticals like banking and hi-tech, and in key geographies like US and Europe with persistently high interest rates and inflationary pressure, discretionary technology demand is getting delayed.

In this note, we track demand indicators relevant for assessing demand for IT services companies. We believe June quarter may be softer than the current consensus expectations based on our discussion with IT companies and Accenture’s August quarter guidance.

HM had started exploring Generative AI 3-4 years back as a part of its annual strategy process along with other new technologies. Post the release of ChatGPT, there has been a lot of interest among clients to leverage Gen AI.

Accenture (ACN) reported revenue growth of US$16.565bn, at mid-point of its guidance adjusted for FX. It revised its organic growth guidance from 6-8% to 6-7% YoY CC i.e. reduced mid-point of guidance by 50bps. Guidance implies 3% QoQ decline and 4% YoY growth in revenue in Aug’23 quarter.

Indian IT - Precariously Placed in the near term: During Q4FY23, aggregate revenues of Top-5 IT firms declined by c.0.8% QoQ in cc terms. While revenues in Q4 were impacted mainly by QoQ decline in Communication and Technology verticals, growth across verticals moderated on a QoQ basis. America and Europe both witnessed declining revenue, indicating weakness across both the sub continents.