Indian Tech Sector Plunges 6% After Accenture Cuts Revenue Guidance

It’s a bloodbath across the tech sector today. The Nifty IT Index has plunged 6%, and large-cap tech stocks like Infosys , Tech Mahindra , and Tata Consultancy Services are down as much as 7% in early trade. This is after Accenture , the global consulting firm, cuts its revenue guidance for the second time in a year. This led to a massive rout in the Indian tech stocks’ American Depository Receipts (ADRs) overnight as well. The Nifty IT index emerged as the biggest loser among all the sectoral indices, dropping 5.85%. Infosys was hurt the most, plunging 8%. It was followed by Mphasis , TCS, Tech Mahindra, HCL Technologies , LTM (LTI Mindtree), and many other IT stocks. The Accenture guidance is a big cue for the IT sector stocks in India , especially in terms of direction, as the company and its guidance are often seen as an indicator of global tech spending. Its financial updates and strategic shifts impact Indian tech companies. Accenture’s downward revision of its revenue growth guidance implies further growth moderation in the near term. According to Jefferies, “this may lead to further cuts to consensus earnings estimates for Indian IT and may also raise concerns on longer-term growth outlook and PE multiples.” Jefferies highlighted that the focus on M&A and new client additions may support growth, but given how “growth uncertainty persists amidst AI pressures and a volatile macro,” they remain ‘Underweight’. Pointing at the takeaways for the Indian IT sector, Jefferies listed three main factors to watch – -Further guidance cut likely: Jefferies believes that the “revised revenue growth guidance suggests further growth moderation which may lead to cuts to consensus expectations,” from the Indian IT sector’s perspective as well. -Long-term outlook: The other concern that Jefferies outlined is that the “soft growth on a low base is likely to raise concerns on a longer-term growth outlook and may drive further derating”. -Need to look at new growth drivers: Jefferies believes that “IT firms may have to look for new growth drivers (mid-market, M&A) to offset softness in traditional services growth.” After Accenture’s 18% fall, the valuation of the top 5 Indian IT companies comes into focus. According to their estimates, the top 5 IT firms are trading at a 70% premium to Accenture, “which poses further downside risks to the multiples of Indian IT firms,” Jefferies highlighted. Nuvama Institutional Equities also sees the Accenture guidance cut as “slightly negative for Indian IT.” Accenture’s guidance cut and soft bookings were also partly due to the Middle East conflict and pose risks for the Indian IT sector. According to Nuvama, “We continue to maintain that Gen AI will eventually lead to the expansion of TAM for Indian IT companies. Additionally, post the recent sharp correction, sector valuations have become highly attractive.” The consulting giant Accenture posted mixed results for the third quarter and lowered its growth expectations for the fiscal year. The IT firm follows a September-August financial year. This is the second time this year that Accenture tweaked its fiscal-year outlook. The company expects 3% to 4% revenue growth in local currency, down from March’s forecast of 3% to 5%. The chief executive officer of the company, Julie Sweets, said, “Accenture delivered a strong third quarter, with broad-based revenue growth, a 9% increase in EPS, and $8.2 billion returned to shareholders year-to-date. Demand for large-scale reinvention remains strong—104 quarterly client bookings of $100 million or more year-to-date, up 13%—and we are seeing more large-scale AI transformation programs while executing our strategy to capture new areas of growth.” “Our agreement to acquire a majority stake in Dragos and all of runZero and NetRise, leaders in OT Security, is the type of move that defines our strategy: it is expanding our addressable market, creating a new platform-led growth opportunity, and positioning Accenture at the centre of one of the most critical cybersecurity challenges our clients face,” the CEO added. J.P. Morgan maintained an ‘Overweight’ rating on Accenture following its Q3 results, which they describe as a mix of lighter-than-expected revenue and a significant shift toward inorganic growth. The company’s revenue reached only the midpoint of guidance rather than the typical “beat”, said the brokerage. However, adjusted EPS ($3.80) and operating margins (17%) both exceeded expectations. The company significantly increased its acquisition spending target to $9 billion (up from $5 billion), focusing on large deals in areas like Operational Technology security.