TCS, Infosys, Wipro, HCL Tech, TechM: Key takeaways from Accenture Q2 earnings

Accenture, whose quarterly earnings are keenly tracked in India for cues, reported a broad-based growth in the second quarter, with the IT major revising upward its guidance to 5-7 per cent from 4-7 per cent earlier. It lowered its FY25 EBIT margin guidance marginally to 15.6-15.7 per cent from 15.6-15.8 per cent earlier. Order bookings were stable at $20.9 billion and included 32 large deals of $100 million, with book-to-bill ratio at 1.25 times in Q2.

Accenture though sounded caution on potential negative impact to its US federal business, as the Trump administration is looking to manage the Federal government more efficiently. The Fed business accounted for 8 per cent of Accenture's overall revenue and 16 per cent of US geography in FY24. Unlike Accenture, Indian IT companies do not have any exposure to US federal government contracts, analysts noted.

But Accenture's commentary suggested that risk of clients turning cautious on IT spends due to rising macro uncertainty could increase in the near-term. Accenture also noted that there have been no pauses from clients on any projects. In certain cases, rising macro uncertainty is prompting Accenture to focus more deeply on cost reduction opportunities upfront, Nomura India noted.

"Overall, the readthrough for Indian IT is of caution and fading possibility of discretionary spending revival in FY26, even as Indian IT players’ reliance on discretionary spend is lower than that of Accenture," said ICICI Securities.

The commentary suggests that clients remain focused on cost efficiency and large-scale transformation rather than incremental IT services spending, said MOFSL.

Nomura noted that a strong recovery of discretionary demand may take a few quarters, it is unlikely to worsen significantly unless there is a very sharp deterioration of the macroeconomic situation.

"While macro risks have increased vs 3QFY25-end, we believe that the absence of exposure to US federal government contracts puts Indian IT companies in a better situation vs Accenture. In our coverage, we prefer INFO and CTSH in large-caps (both Buy rated); and Coforge (Buy) in mid-caps," Nomura said.

Accenture, which reported $65 billion in trailing 12-month revenue, is a behemoth in the consulting and IT Services space, as its earnings are critical to understanding the offshore IT/ITES industry business dynamics as 75 per cent of its 801,000 workforce is based in the global delivery network, with possibly 3,25,000 in India.

Nirmal Bang noted that the outsourcing accounts for a very large part of Accenture's revenue, nearly 48 per cent on TTM basis. It is also into consulting, where it is up directly in competition with India-centric IT players like Tata Consultancy Services (TCS), Cognizant Technology Solutions, Infosys Ltd, Wipro Ltd, HCL Technologies Ltd and Tech Mahindra Ltd.

"We believe ACN's resilient guidance is flowing from consumption of large deals already won. Besides, ACN's implied 2H organic guide (0-4 per cent; JMFe) is largely unchanged, implying a sharp deceleration from 1H (4 per cent YoY organic) at the lower end. Moreover, no increase in client budgets and a still constrained discretionary environment could weigh on Infosys' initial FY26 guide. TCS, at 10-year average PER currently, offers safety in this environment. We will stick to it," JM Financial said.

Nuvama said while it stayed positive on the sector from medium to long-term, the near-term uncertainty is likely to remain an overhang on the stocks.