CLSA says Accenture gaining market share a threat, offers 4 IT stock ideas

Accenture’s latest quarterly results sent Indian IT stocks falling on Friday, as they signalled not just client caution but also rapid market share gains for the Dublin-based IT giant. That said, CLSA remained constructive on the Indian IT sector due to attractive valuations, saying Gen AI is not emerging as a headwind, and that margins are largely stable.

Accenture's Q4 revenues at $17.6 billion, up 4.5 per cent in constant currency terms, were close to the top end of its guidance. CLSA noted that Accenture's 'Managed services' grew 9 per cent overall and 10 per cent in financial services, while order bookings in managed services rebounded to $12.44 billion in Q4, up 7.2 per cent YoY. CLSA said that these trends suggest Gen AI is expanding revenues rather than compressing contracts, contrary to earlier fears.

Accenture’s Gen AI business is now generating $900 million in quarterly revenue, with $1.8 billion in order bookings, an 80 per cent YoY jump. The IT firm expects savings from AI to be reinvested in new technologies, reinforcing the sector’s growth potential. CLSA highlighted that strategic moves—like a strong technology partner ecosystem, rapid acquisitions, and reskilling 77,000 employees in AI, position Accenture to stay ahead.

The foreign brokerage said Accenture’s growing market share poses a competitive threat to Indian IT firms. 

For Indian IT, CLSA sees Infosys, Tech Mahindra, Persistent Systems, and Wipro as top picks. Strong growth in financial services and communications, media & technology verticals points to continued tailwinds. While H1B visa concerns exist, CLSA believes their impact is limited, with offshoring, local hiring, and subcontracting mitigating risks. The only notable headwind is the proposed HIRE Act, though its passage appears unlikely.

"We remain constructive on the Indian IT sector due to attractive valuations, Gen AI not being a headwind, margins remaining largely stable and a cyclical recovery in the US in FY27CL. Infosys (INFY), Tech Mahindra (TechM), Persistent Systems (PSYS) and Wipro (WPRO) remain our top picks," it said.

CLSA said Accenture’s scale-up in AI is a threat, but for Indian IT, the sector remains attractive with stable margins, Gen AI tailwinds, and valuations that support selective investment.

"The Indian IT sector is more affected by narratives surrounding the H1B visa hit, which we believe has limited impact to FY27 PAT on account of multiple risk mitigation strategies like offshoring, local hiring, near-shoring and reliance on sub-contractors," CLSA said.

The potential passage of the proposed Halting International Relocation of Employment (HIRE) Act remains the only major headwind to be navigated over the course of next few months given the tough stance taken by US administration lately. The likelihood of it getting passed remains slim given it requires congressional approval to become a law, it said.