Indian IT stocks witnessed a sharp decline on March 21, following a downward revision in Accenture’s growth outlook for the fiscal year 2025. The domestic IT sector, which had been on a three-session winning streak, opened on a weak note as global market sentiment turned negative. Major IT firms, including Infosys, Wipro, TCS, and HCL Technologies, saw their stock prices drop over 2% in early trading, reflecting investor concerns about future growth prospects.
Accenture, considered a key benchmark for Indian IT companies, reported weaker-than-expected second-quarter revenue guidance, leading to a 7% drop in its stock on the NASDAQ. This had a cascading effect on Indian IT firms, as Accenture’s performance is often viewed as a leading indicator of industry trends. Additionally, American Depository Receipts (ADRs) of Infosys and Wipro declined by over 3% overnight, reinforcing the bearish outlook for the sector.
Accenture’s updated revenue growth projection for FY25 now stands between 5% and 7%, compared to its earlier guidance of 4% to 7%. The company cited rising uncertainty in public services, particularly due to budget reviews and spending cuts by the U.S. government. These reductions, driven by the Department of Government Efficiency (DOGE), have raised concerns about reduced IT spending, potentially affecting service providers that rely on U.S. public sector contracts.
Analysts have weighed in on the implications of Accenture’s revised guidance. Hong Kong-based CLSA noted that approximately 8% of Accenture’s total revenue is derived from U.S. public services, which are facing major cutbacks. However, it emphasized that Indian IT firms are not experiencing the same level of impact. CLSA remains optimistic about the sector, maintaining an “outperform” rating on TCS, Infosys, Wipro, and Tech Mahindra. The firm believes that continued improvements in Accenture’s Banking, Financial Services, and Insurance (BFSI) and Communications, Media, and Technology (CMT) verticals could provide stability to Indian IT stocks.
On the other hand, Citi expressed a more cautious stance, warning that Indian IT companies may struggle to improve their margins despite the recent depreciation of the rupee. While Citi has retained a positive outlook on HCL Technologies, Infosys, and Mphasis, it highlighted short-term volatility as a key concern. Nuvama Institutional Equities echoed similar sentiments, acknowledging the long-term growth potential of the sector but cautioning that near-term uncertainty could weigh on stock performance.
Accenture’s Q2 earnings report provided further insights into the company’s financial health. The firm recorded a 3% decline in new bookings, totaling $20.9 billion, with consulting bookings at $10.47 billion and managed services bookings at $10.44 billion. However, GAAP diluted earnings per share (EPS) showed a 16% year-on-year increase, rising to $3.59 from $3.10 in the previous fiscal. The operating margin for the quarter stood at 16.7%, marking a 90 basis point year-on-year improvement and a 167 basis point sequential gain.
Overall, the decline in Indian IT stocks underscores the sensitivity of the sector to global market trends, particularly those involving major players like Accenture. As investors assess the impact of Accenture’s revised outlook, market sentiment is expected to remain cautious in the near term. With ongoing macroeconomic uncertainties and evolving industry dynamics, stakeholders will closely monitor future earnings reports and policy changes to gauge the sector’s trajectory.
