Indian IT stocks faced significant downward pressure on March 21, 2025, following Accenture's release of its second-quarter earnings for FY2025. The Nifty IT Index saw a steep decline of approximately 15% year-to-date, trailing broader markets by nearly 13%. This downturn highlights the mounting concerns about macroeconomic uncertainties and potential earnings risks within the sector.
Accenture reported revenues of $16.7 billion for the second quarter, marking an 8.5% year-on-year growth in constant currency terms. This result was near the upper range of its guidance of 5% to 9% growth, prompting Accenture to narrow its revenue growth forecast for FY2025 to 5-7%, shifting from its previous 4-7% range. Despite these adjustments, the company anticipates organic growth of only 2-4% year-on-year.
The report has sparked caution among analysts, particularly concerning discretionary spending in IT services. “Accenture’s top end of the guidance (unchanged) bakes in no recovery in discretionary spending,” reported by Motilal Oswal, indicating constraints particularly impacting smaller deals. Furthermore, the demand environment remains largely stagnant, with Accenture management noting that while large-scale transformation projects are prioritized, discretionary spending, especially for smaller deals, remains subdued.
In a further analysis, analysts from Emkay Global cautioned that “the risk of clients turning cautious on IT spends due to rising macro uncertainty could increase in the near term.” This sentiment resonates with concerns about the ongoing global economic uncertainties, notably around tariffs and geopolitics, which have raised alarms about IT spending in the U.S. This has cast a shadow over expected improvements in the tech sector, as mentioned by Emkay's Dipeshkumar Mehta, who expressed initial optimism for increased tech spending but noted a shift due to economic clouds.
The impact of Accenture’s results extended to Indian IT stocks, which saw widespread losses. Wipro, Infosys, TCS, and other major players experienced declines of up to 3%, dragging the Nifty IT index down further. Nifty IT saw a crash on the same day, falling by 1,000 points to close at 36,674, underscoring the sector's volatility following Accenture's poor results.
Interestingly, Accenture's revenue structure revealed that Financial Services and Healthcare were significant growth areas, both showing year-on-year increases of 11% and 10%, respectively. North America, which constitutes a large portion of Accenture’s revenue, experienced an 11% growth, followed by EMEA growing 8% year-on-year. Despite this, Accenture emphasized that overall deal bookings remained a bit soft, raising concerns about the sustainability of growth momentum.
Looking towards the future, analysts suggest that Indian IT firms, which have less exposure to U.S. government contracts compared to Accenture, might navigate these challenges more effectively. Nomura's analysis favored companies such as Infosys and Coforge over others, factoring in the potential for long-term stability despite heightened near-term risks associated with global uncertainties.
Despite these variables, Nuvama remains cautiously optimistic about the Indian IT sector's medium- to long-term prospects. They are wary, however, of the current uncertainties weighing on stock performances, indicating that monitoring upcoming earnings reports will be crucial in gauging resilience in the face of potential economic downturns.
The overall message from analysts is clear: while the landscape for IT firms is challenging, periods of downturn can also present opportunities for strategic maneuvers that may align with longer-term recovery trends. The importance of diversification amid these economic headwinds is significant for investors looking to navigate the uncertain waters ahead.
As Accenture continues to set the tone for the industry, its cautious stance has raised critical questions about the sustainability of growth in the IT services sector. With pressures mounting both on corporate clients and their IT partners, stakeholders remain poised to watch closely how these broader economic factors will influence future earnings, revenue strategies, and recovery dynamics going forward.
