Accenture outlook lifts hopes for Indian IT stocks

Indian technology stocks are expected to draw attention on Monday after Accenture issued a more optimistic revenue forecast than analysts had anticipated. The update has offered some relief to investors worried that weaker discretionary spending and artificial intelligence could undermine demand for traditional technology services.

The Economic Times reported that shares of Infosys, Tata Consultancy Services, Wipro, Tech Mahindra, HCLTech and other Indian IT companies could benefit from the improved mood. Indian-listed technology stocks have faced a difficult period as customers delayed non-essential projects and markets assessed the potential impact of AI on established software and outsourcing businesses.

Accenture, whose performance is closely followed as a gauge of global technology-services demand, projected full-year revenue growth of 3% to 6%. Its fourth-quarter revenue reached $18.68 billion, exceeding the $18.03 billion expected by analysts. The company’s comments pointed to continued activity in consulting and managed services, while work connected to AI also helped investor sentiment.

Why Accenture matters to Indian IT

The company’s outlook is significant for Indian exporters because many of the country’s largest technology firms serve customers in the United States and Europe. A healthier outlook from a major global services provider can suggest that technology budgets may be stabilising, even if a broad recovery in discretionary spending remains some way off.

The market response was already visible in overseas trading. Infosys American depositary receipts rose about 8% last week, while Wipro’s ADRs gained 3% as investors reacted to Accenture’s results and guidance.

Brokerage Nuvama described the implications for Indian IT as modestly positive, according to The Economic Times. Its assessment was that the expected improvement in consulting could indicate early signs of a recovery in optional technology spending, although it did not point to an immediate rebound. Nuvama also argued that generative AI could ultimately expand the market available to Indian technology companies if they succeed in adapting their offerings and restoring their relevance.

Indian IT remains the third-largest sector in the Nifty by weighting, behind financials and energy. That position means the performance of the sector matters beyond individual companies, particularly as investors consider whether concerns surrounding the $315 billion industry have become excessive.

Pressure ahead of the September quarter

The improved sentiment comes before a results season that is expected to be challenging. Brokerage Jefferies said large Indian IT companies could deliver their weakest second-quarter growth in three years. The quarter is also expected to show a widening difference between larger and mid-sized companies.

Jefferies estimated that the sector’s combined revenue would rise 1.7% sequentially in constant-currency terms. Organic growth, excluding the effect of acquisitions, was forecast at only 0.8%. Large companies were expected to expand by 0.5%, compared with 3.5% for mid-sized firms. Acquisitions, rather than underlying business growth, are therefore expected to contribute an increasing share of the sector’s expansion.

The figures reflect a change in the economics of technology contracts. Kotak Institutional Equities said the overall services market was still expanding, but the pool of revenue available to vendors after accounting for AI-related pricing effects was becoming smaller.

Clients are seeking a share of the efficiency gains produced by AI when contracts are renewed. They are also retaining more of those savings instead of allowing vendors to capture them as additional revenue. In this environment, winning new deals may help technology companies remain involved with customers without necessarily producing strong growth.

AI is changing contract negotiations

The debate in Indian IT has moved beyond whether AI will eliminate jobs. Investors and analysts are increasingly focused on whether the technology will reduce the value of services that companies already provide.

Kotak estimated gross pricing deflation of about 7% and net deflation of 3.5% for the companies under its coverage. Although AI-related opportunities are expanding, the brokerage said they are not yet large enough to compensate for lower pricing in existing business.

Emkay Research likewise reported that customers were incorporating expected AI efficiencies into contract renewals, vendor-consolidation efforts and programmes designed to reduce costs. These changes are forcing suppliers to reconsider commercial arrangements at the same time as they invest in new AI capabilities.

Accenture’s results have consequently improved expectations without removing the sector’s central risks. The forecast suggests that demand for technology services has not disappeared, but Indian companies still need to manage weaker pricing, cautious clients and a transition towards work in which AI plays a larger role.