The Nifty IT Index has declined approximately 15% since the beginning of 2025. (AI image)
Accenture’s quarterly results have raised concerns for Indian IT sector’s growth prospects, with technology stocks, including industry leaders TCS,
HCL Tech
, and Infosys, experiencing a significant drop of up to 3% on Friday. Accenture’s results have led to worries about potential earnings risks and market demand conditions.
The
Nifty IT Index
has declined approximately 15% since the beginning of 2025, showing weaker performance compared to broader markets by nearly 13%. This downturn reflects increased economic uncertainties, earnings concerns, and doubts about achieving expected growth targets this year, according to an ET report.
Accenture achieved Q2FY25 revenues of $16.7 billion, showing 8.5% year-on-year constant currency (CC) growth, approaching the higher end of their projected 5% to 9% range. They have adjusted their FY25 revenue growth forecast to 5-7% CC (previously 4-7% CC), with organic YoY CC growth expected between 2-4%.
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“Accenture’s top end of the guidance (unchanged) bakes in no recovery in discretionary spending. The results reinforce the cautious sentiment around discretionary spending in IT services, which remains constrained, particularly for smaller deals,” domestic brokerage firm Motilal Oswal noted.
What’s the worry for Indian IT?
1) Reduced Deal Activity
Q2FY25 showed limited discretionary spending, especially affecting smaller deals, despite some improvements in BFSI and healthcare sectors. Clients continue to maintain strict budget controls, affecting smaller deal opportunities.
Deal activity remained subdued, raising questions about sustained growth, particularly during uncertain periods, according to Emkay Global.
2) No Growth in Demand
Accenture’s leadership has reported that the overall demand situation shows no significant changes. While clients continue to focus on major transformation initiatives, smaller project spending remains conservative.
“At the beginning of CY25, we were optimistic that the ensuing macro improvement could lead to increased tech spending and growth acceleration. However, since then, elevated uncertainty around US tariffs, global macros, and geopolitics have weighed on tech spending,” Emkay’s Dipeshkumar Mehta noted.
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3) Macro Uncertainties Persist
Accenture’s executives highlighted ongoing concerns regarding worldwide economic and geopolitical instability. Despite their efforts to minimise impact on FY25 growth, future prospects remain unclear.
Financial experts suggest these economic uncertainties might challenge the projected figures for Indian IT companies, which presume an uptick in discretionary expenditure.
“Risk of clients turning cautious on IT spends due to rising macro uncertainty could increase in the near term. Accenture also noted that there have been no pauses from clients on any projects. In certain cases, rising macro uncertainty is prompting Accenture to focus more deeply on cost reduction opportunities upfront,” Nomura’s Abhishek Bhandari said.
What should Indian IT investors do?
The recovery in discretionary spending might require several quarters, yet analysts maintain that barring severe macroeconomic decline, the situation should remain relatively stable. Indian information technology organisations, in contrast to Accenture, lack exposure to American federal government contracts, potentially offering them a competitive advantage.
For investment preferences, Nomura favours Infosys and Coforge, whilst Emkay ranks its large-cap selections as Infosys, TCS, HCL Tech, Tech Mahindra, LTIMindtree and Wipro.
Nuvama maintains an optimistic outlook for the sector’s medium and long-term prospects, though cautions about possible stock performance impacts due to current uncertainties.
With Indian IT companies facing economic challenges and prudent client expenditure, the investment community will keenly observe forthcoming financial results to assess the sector’s ability to withstand present uncertainties.
(Disclaimer: Recommendations are views given by experts are their own. These opinions do not represent the views of The Times of India)
