Domestic IT stocks are expected to start on a weak note on March 21, breaking a three-session winning streak, as global IT services leader Accenture’s second-quarter revenue forecast fell short of investor expectations.
Accenture is often considered a key indicator of performance for Indian IT firms, providing insights into industry trends. The company projected its annual revenue for fiscal year 2025 to grow between 5% and 7%, slightly narrowing its earlier forecast of 4% to 7%. However, concerns over economic uncertainty, particularly in the US public sector, have weighed on investor sentiment.
Market Impact and Investor Reaction
Despite the upward revision of revenue guidance, Accenture’s shares plummeted by 10% on the New York Stock Exchange as investors reacted negatively. The cautious outlook also affected American Depository Receipts (ADRs) of major Indian IT firms, with Infosys and Wipro experiencing a decline of over 3% overnight. This negative sentiment is likely to impact domestic IT stocks in today’s trading session.
Hong Kong-based brokerage CLSA highlighted that Accenture derives approximately 8% of its revenue from US public sector services, an area currently experiencing budget cuts. However, CLSA noted that this challenge does not directly impact Indian IT players. Meanwhile, Citi maintained a cautious stance on the Indian IT sector, citing margin pressures despite rupee depreciation. The brokerage, however, reiterated its bullish stance on HCL Technologies and Infosys among large-cap firms and Mphasis in the mid-cap space.
Mixed Outlook for Indian IT Sector
Domestic brokerage Nuvama Institutional Equities acknowledged the long-term potential of the Indian IT sector but cautioned that short-term uncertainties could weigh on stock performance. In contrast, CLSA expressed optimism, maintaining an outperform rating on TCS, Infosys, Wipro, and Tech Mahindra, citing growth in Accenture’s Banking, Financial Services, and Insurance (BFSI) and Communications, Media, and Technology (CMT) segments.
Accenture’s Q2 Performance Snapshot
In its fiscal second quarter, Accenture reported new bookings of $20.9 billion, reflecting a 3% sequential decline. Consulting new bookings stood at $10.47 billion, while managed services bookings came in at $10.44 billion.
The company posted GAAP diluted earnings per share (EPS) of $3.59, marking a 16% increase from $3.10 in the previous quarter and a 10% rise over the adjusted EPS of $3.27 a year ago. Additionally, the operating margin for the quarter improved to 16.7%, up 90 basis points year-on-year and 167 basis points sequentially.
With Accenture’s results setting the tone, Indian IT stocks may face headwinds in the near term as investors digest the implications of global economic uncertainties.
