IT Sector Bleeds After Accenture Q2 Earnings – Infosys, Wipro, TCS Among Top Losers
Indian IT stocks faced a significant downturn on Friday, with major players like Infosys, Wipro, and Tata Consultancy Services (TCS) witnessing declines of up to 3% following the release of Accenture’s second-quarter earnings for the period ending February 2025. The slump in these stocks reflects investor reactions to the global IT giant’s performance and its potential implications for the broader technology sector.
On the Bombay Stock Exchange (BSE), Infosys saw the steepest decline, dropping 3.09% to settle at ₹1,564.15. TCS shares also suffered losses, falling 2.7% to ₹3,466.60, while Wipro recorded a 2.85% dip, closing at ₹260.30 per share. HCL Technologies was not spared from the sell-off either, with its stock price declining 2.53% to ₹1,521.20.
The impact of Accenture’s earnings report was not limited to domestic markets. The American Depository Receipts (ADR) of Infosys and Wipro saw sharp declines on the New York Stock Exchange (NYSE) in overnight trading, indicating a global ripple effect on investor sentiment regarding Indian IT firms.
Accenture’s quarterly results are often considered a key indicator for the IT services industry, given its significant presence and client base across various markets. Investors closely analyze its earnings and guidance to gauge trends that could affect Indian IT firms, many of which operate in similar business segments. The latest decline in stock prices suggests concerns over future growth prospects in the sector, possibly influenced by factors such as global demand, client spending patterns, and macroeconomic conditions.
Indian IT stocks continued to feel the impact of Accenture’s earnings report, with Infosys and Wipro’s American Depository Receipts (ADRs) registering notable declines in the US market. Infosys ADRs slipped 3.5% to close at $17.9 on the American stock exchange, while Wipro’s ADRs fell 3.2% to $2.79 on the New York Stock Exchange (NYSE).
The broader US stock market also ended the trading session lower. The tech-heavy Nasdaq Composite, which is home to several major technology firms, declined by 59.16 points, or 0.33%, closing at 17,691.63. The overall weakness in the technology sector contributed to a cautious investor sentiment.
Accenture Q2 Results and Revenue Outlook
Global IT services leader Accenture announced its financial results for the second quarter ended February 2025. The company reported a 5% year-on-year (YoY) growth in revenue, reaching $16.7 billion. This performance was in line with its previously projected revenue range of $16.2 billion to $16.8 billion for the quarter.
Accenture also made adjustments to its full-year revenue forecast. While it maintained the upper end of its projected growth range at 7%, it raised the lower end from 4% to 5%. This means the company now expects full-year revenue growth between 5% and 7% in local currency. The narrowing of the forecast range reflects Accenture’s updated expectations for business demand and market conditions.
Given Accenture’s strong presence in the IT services sector, its earnings report often serves as a key benchmark for Indian IT firms, many of which cater to similar global clients. The market’s reaction suggests that investors are assessing how Accenture’s performance and guidance could influence the outlook for India’s top IT companies.
Accenture has provided its revenue guidance for the third quarter of the fiscal year 2025, projecting revenues in the range of $16.9 billion to $17.5 billion. This forecast reflects the company’s expectations for business performance in the coming months, factoring in market demand, client spending trends, and global economic conditions.
In terms of profitability, Accenture reported a gross margin of 29.9% for the second quarter of FY25. This marks a decline from the 30.9% gross margin recorded in the same quarter of the previous fiscal year. The year-on-year decrease in gross margin suggests potential shifts in cost structures, pricing strategies, or operational expenses that may have influenced overall profitability.
As one of the leading players in the IT services sector, Accenture’s financial performance and projections are closely watched by investors and industry analysts. Its quarterly results often provide insights into broader industry trends, influencing market sentiment for other major IT firms operating in similar segments.
Accenture’s New Bookings and Demand Trends
Accenture reported total new bookings of $20.9 billion for the second quarter of FY25, coming in slightly below market expectations. Within this, Consulting bookings accounted for $10.5 billion, while Managed Services bookings stood at $10.4 billion. While these figures indicate continued deal activity, the slightly lower-than-expected bookings have raised concerns about the sustainability of growth momentum, particularly in an uncertain economic environment.
The company’s management highlighted that the overall demand environment remains largely unchanged. Clients are continuing to focus on large-scale transformation initiatives and reinvention programs, indicating a preference for strategic, long-term investments over smaller, discretionary projects. However, discretionary spending—especially on smaller deals—remains constrained, reflecting cautious budget allocations by businesses amid macroeconomic uncertainties.
Impact on Indian IT Stocks
Accenture’s performance and guidance often have a ripple effect on the Indian IT sector, given the similarities in business models and client bases. Indian IT majors derive a significant portion of their revenue from US-based clients, many of whom also engage with Accenture for IT and consulting services.
According to Avinash Gorakshkar, Head of Research at Profitmart Securities, nearly half of the US business for Indian IT companies is linked to Accenture’s client base. With Accenture providing a weaker-than-expected Q2 outlook, investor sentiment turned cautious, leading to a decline in the American Depository Receipts (ADRs) of Infosys and Wipro on the New York Stock Exchange (NYSE) on Thursday. Given this trend, Indian IT stocks were anticipated to open under selling pressure in Friday’s trading session, as investors reacted to Accenture’s outlook and its implications for the broader IT services industry.
Uncertainty in Federal Spending and Its Impact on Indian IT Stocks
While Accenture delivered a quarter of steady growth and even raised its full-year FY25 revenue guidance by 50 basis points at the midpoint, analysts remain cautious about the broader macroeconomic landscape. One of the key concerns highlighted by market experts is the uncertainty surrounding federal spending, which could impact overall IT budgets and new project allocations.
According to analysts at Antique Stock Broking, Indian IT companies have only a small exposure—typically in the low single digits—to federal contracts. However, even this limited dependency could contribute to short-term stock volatility, especially if there are delays or reductions in government IT spending in key markets like the US.
Other Growth Headwinds and Opportunities
Beyond federal spending concerns, analysts also pointed out that rising global uncertainties in recent weeks have increased the risk of enterprises pausing or delaying their IT expenditures. This cautious client approach could pose near-term challenges for Indian IT firms, particularly in securing new deals or expanding existing contracts.
Despite these headwinds, strong growth in Accenture’s Managed Services segment and steady bookings provide some optimism. Analysts believe that continued momentum in large outsourcing and transformation deals could help Indian IT firms offset some of the macroeconomic concerns. Managed Services, which involves long-term technology and operations outsourcing, tends to offer more stable revenue streams, making it a positive factor for IT services companies navigating an uncertain environment.
Sector Outlook and Focus Areas
Within the Indian IT space, Antique Stock Broking has identified certain companies that it believes are well-positioned to navigate current market conditions. The brokerage firm’s top picks in the sector include HCL Technologies, Coforge, Mphasis, and Cyient. These companies are being closely watched for their ability to capitalize on emerging opportunities while managing the risks posed by macroeconomic uncertainties.
Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services, has expressed concerns over the impact of macroeconomic uncertainties on Indian IT companies. He noted that the prevailing economic challenges could pose a risk to market expectations for the sector, particularly as consensus estimates currently factor in some level of recovery in discretionary IT spending.
Discretionary spending refers to non-essential IT investments, such as new technology implementations, pilot projects, and innovation-driven initiatives. These expenditures are often the first to be scaled back when businesses face economic uncertainties or adopt a more cautious approach to budget allocation.
Given the current global economic landscape, Mehta suggests that if discretionary spending does not recover as anticipated, it could challenge the growth projections for Indian IT firms. Investors and industry analysts are closely monitoring how companies navigate these uncertainties and whether client spending patterns align with earlier expectations.
Nifty IT Index Performance and Growth Concerns
The Nifty IT Index has seen a notable decline of approximately 15% so far in the calendar year 2025 (CY25TD), significantly underperforming the broader market by around 13%. According to Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services, this underperformance can be attributed to several key factors, including heightened macroeconomic uncertainties, potential risks to earnings, and concerns that the anticipated growth acceleration in the sector may once again fall short of expectations.
Mehta pointed out that while valuations in the IT sector have already adjusted to reflect a more moderate growth outlook for CY25, risks of a further slowdown or even a recession remain a concern. The uncertainty surrounding global economic conditions, client spending behavior, and demand for IT services continues to weigh on investor sentiment.
Top IT Stock Picks by Emkay Global
Despite these challenges, Emkay Global has outlined its preferred stock picks within the large-cap Indian IT space. The firm’s pecking order for IT stocks includes:
1. Infosys
2. Tata Consultancy Services (TCS)
3. HCL Technologies
4. Tech Mahindra
5. LTIMindtree
6. Wipro
These companies are being closely monitored for their ability to navigate current market conditions, adapt to evolving client demands, and sustain long-term growth in an environment of increased economic uncertainty.
