Accenture Q3 Crash Shows GenAI Eating IT Revenue, Infosys Feels Pain More Than Peers

Accenture's weaker-than-expected guidance has intensified concerns around the outlook for Indian IT companies, with multiple brokerages warning that demand uncertainty and geopolitical disruptions could continue to weigh on growth over the coming quarters.

The global consulting and technology services giant cut its revenue outlook for the current quarter, disappointing investors despite reporting healthy profitability. The stock slumped 19% in US trading on Thursday, triggering a sell-off in the American depositary receipts of Indian IT majors such as Infosys and Wipro.

ALSO READ: AI Will Not Replace Workers, Says Amazon Founder Bezos; Company Has Cut Over 30,000 Jobs

Brokerages said the commentary from Accenture's management suggests that the demand environment remains challenging, with clients continuing to delay discretionary spending decisions.

Morgan Stanley said Accenture's results point to a “tough macro climate” that could persist into the second quarter. Morgan Stanley believes there is a risk that uncertainty could spill over into the coming quarters and potentially affect FY27 guidance from Indian IT firms.

HSBC noted that the weakness appears to be driven more by geopolitical disruptions than concerns around AI-led productivity gains. HSBC added that Indian IT companies continue to lack meaningful near-term catalysts, although sector valuations are now approaching trough levels.

Jefferies warned that Accenture's revised revenue outlook could lead to cuts in consensus estimates across the IT sector. According to Jefferies, traditional IT services growth remains under pressure, highlighting that India's top five IT companies continue to trade at a significant premium to Accenture.

Kotak Institutional Equities said Accenture's results offered “no solace” for a sector already grappling with multiple headwinds. Among large-cap Indian IT firms, Kotak believes Infosys could be relatively more vulnerable to the indirect impact of slowing discretionary spending and weakness in product-oriented verticals.

ALSO READ: IT Stocks Under Pressure: How Accenture Earnings Jitters May Hit Dalal Street's Tech Majors

MS on IT Sector

• Read-across from Accenture Q3: Tough macro climate could continue in Q2
• Implied Q4 growth outlook were below estimate
• Incremental data points alluded to delayed decision-making and impact of Middle East
• What's relevant for Indian IT:
  • Indirect impact of geopolitical conflict felt across different geographies/verticals
  • Likelihood of impact of uncertainty percolating into Q2 as well
  • Risks to FY27 guidance range from Indian IT companies
  • Impact could be different across players

  HSBC on IT Sector

  • Guidance cut signals continued soft demand environment, which is a negative read across for Indian IT
  • However, softness is driven by the Middle East disruptions rather than AI-led productivity pressures
  • Indian IT services companies continue to lack short-term triggers while their valuations seem close to trough

  Jefferies on IT Sector

  • Revised revenue growth guidance suggests further growth moderation
  • This may lead to cuts to consensus expectations
  • Soft growth on a low base is likely to raise concerns on longer term growth outlook and may drive further derating
  • IT firms may have to look for new growth drivers (mid-market, M&A) to offset softness in traditional services growth
  • Post Accenture's 18% fall, Top-5 IT is trading at 70% premium to Accenture
  • This poses further downside risks to multiples of Indian IT firms

   Kotak Securities on IT Sector

  • Read-through for Indian IT—no positive cues
  • Accenture's results provide no solace to a sector beleaguered by multiple headwinds
  • Risk of higher AI deflation from sharp GenAI capability increase in software tasks
  • See incremental headwinds to growth led by the Middle East conflict
  • Indirect impact focused more on discretionary spending and product vertical
  • Infosys can be a tad more vulnerable than Tier 1 peers to indirect impact
  • Possibility of the lack of sufficiently managed services opportunities in the market
  • Growth moderation in the existing services market may not recover soon

  ALSO READ: Accenture Shares Slump 19% In Biggest One-Day Drop; Infosys, Wipro ADRs Slide Up To 8%

  Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.