Concerns Arise for Indian IT Sector Following Accenture’s Results

The recent quarterly results from Accenture have sparked unease regarding the growth prospects of India’s IT sector. Major technology stocks, including TCS, HCL Tech, and Infosys, saw sharp declines of up to 3% on Friday. Analysts fear these results could indicate potential earnings risks and adverse market demand conditions.

Nifty IT Index Decline

Since the start of 2025, the Nifty IT Index has plummeted by approximately 15%, underperforming compared to broader markets by nearly 13%. This decline is attributed to rising economic uncertainties, concerns about earnings, and skepticism regarding the realization of anticipated growth targets, as noted in a report from ET.

Accenture’s Performance and Forecast

Accenture reported revenues of $16.7 billion for Q2FY25, marking an 8.5% year-on-year growth in constant currency, aligning closely with their projected range of 5% to 9%. They revised their fiscal year 2025 revenue growth forecast to 5-7%, up from a previous estimate of 4-7%, with organic year-on-year growth anticipated to range between 2-4%.

Challenges Facing Indian IT

1. Limited Deal Activity

The results for Q2FY25 reflected constrained discretionary spending, particularly affecting smaller deals, despite some improvements in the BFSI and healthcare sectors. Clients are continuing to impose strict budget controls, limiting opportunities for smaller engagements.

2. Stagnant Demand

According to Accenture’s leadership, the current demand situation has not shown any notable changes. While clients are still concentrated on major transformation projects, spending on smaller projects continues to remain subdued. Experts suggest that heightened uncertainties regarding US tariffs and global economic conditions are impairing expectations for increased tech spending.

3. Ongoing Economic Uncertainties

Accenture’s executives acknowledge persistent concerns about global economic and geopolitical instabilities. Despite efforts to minimize the impact on growth for fiscal year 2025, the future remains uncertain. Analysts have noted that these economic issues could challenge projections for Indian IT firms anticipating higher discretionary spending.

Investor Guidance for Indian IT

While recovery in discretionary spending may take multiple quarters, analysts believe the situation will stabilize unless severe macroeconomic downturns occur. Indian IT firms, unlike Accenture, have limited exposure to US federal contracts, potentially providing a competitive edge. Preferred investment choices include Infosys and Coforge, with large-cap selections including TCS, HCL Tech, Tech Mahindra, LTIMindtree, and Wipro highlighted by analysts.