No near-term recovery in sight for IT services sector as Accenture cuts growth guidance: Kotak
New Delhi, June 22
Global IT services major Accenture's latest quarterly performance and lowered full-year guidance indicate that demand conditions remain challenging, with little sign of an imminent recovery for the IT services industry, according to a report by Kotak Institutional Equities.
The brokerage said Accenture's results offered "no solace to a sector beleaguered by multiple headwinds" as discretionary spending pressures persist and geopolitical uncertainties continue to weigh on client decision-making.
Accenture reported revenue of USD 18.7 billion for the quarter, up 5.6 per cent year-on-year in dollar terms and 3 per cent in local currency, with growth landing at the midpoint of its guidance range.
However, the company reduced its FY2026 revenue growth guidance to 3-4 per cent from 4-5 per cent earlier. Kotak noted that "the midpoint of the guidance essentially implies nil organic growth, excluding the US Federal business."
According to the report, the ongoing conflict in the Middle East has emerged as an additional headwind for the sector. Accenture disclosed that the conflict had a revenue impact of USD 100 million during the quarter, split between direct effects on its Middle East operations and indirect impacts on other regions and verticals.
"The Middle East conflict contributes to incremental demand headwinds," the report said, adding that "longer decision-making due to the war scenario led to sales delays in the Middle East and the EMEA."
Kotak highlighted that discretionary spending remains under pressure, while several large deal opportunities have been pushed into FY2027 due to client-specific reasons.
A key concern flagged by the brokerage was weakness in bookings, particularly in managed services. Accenture's total bookings declined 3 per cent in local currency, while managed services bookings fell sharply.
The report noted a "sharp yoy decline in managed services bookings" and highlighted that "Accenture's book-to-bill in managed services declined below 1X in 3QFY26."
Kotak said the development raises concerns about the availability of sufficiently large managed services opportunities in the market.
The brokerage also expressed caution over Accenture's recent acquisition strategy and its push into the mid-market segment.
Discussing the company's recent cybersecurity acquisitions and launch of Accenture Edge, Kotak said that while such moves could be viewed as strategic efforts to capture opportunities arising from AI adoption, they also raise questions about confidence in the existing market.
"On the other hand, the expensive nature of acquisitions and focus on midmarket enterprises, not the typical focus area for a large services firm, also raises the question of whether these are desperate measures taken in an increasingly tougher and competitive IT services market," the report stated.
On the artificial intelligence front, the report acknowledged encouraging trends in enterprise adoption. Kotak said clients continue to invest in digital core capabilities and are moving from pilot projects to production deployments.
However, the brokerage cautioned that "commentary on higher AI adoption by clients is encouraging, but is not reflected in numbers as of now."
For Indian IT companies, Kotak believes Accenture's commentary points to continued demand uncertainty, additional risks from geopolitical developments and no immediate signs of a broad-based recovery in discretionary technology spending.
— ANI
Reader Comments
I work in a mid-size IT services company and the situation is exactly as described. Clients are delaying decisions, discretionary spending is nil, and every deal requires multiple approvals. The artificial intelligence hype is everywhere but it's not translating into revenue yet. Indian IT firms like Infosys, TCS, and Wipro will feel this too. Time for employees to upskill and for companies to focus on cost optimization rather than just chasing growth.
Kotak's point about Accenture's expensive acquisitions and mid-market push being "desperate measures" is interesting. When a giant like Accenture starts behaving like a startup chasing deals, you know the market is bad. Indian IT companies have been through cycles before, but this one feels different - AI disruption combined with geopolitical mess. Let's hope the government's focus on GCCs and services exports helps cushion the blow for Indian IT.
As someone who works with Indian IT vendors from the US side, I can confirm the slowdown. Indian firms are still competitive on cost, but clients are more cautious with budgets. The report's mention of managed services bookings below 1X book-to-bill is a red flag. It's not just a blip - this might be a structural shift. Let's see how Indian IT companies adapt.
I've been saying this for months - the IT boom of 2020-2022 was an anomaly. Now we're seeing reality. But Indian companies have survived worse (dot-com bust, 2008 crash). The key will be cost discipline and focusing on high-value services like AI and cybersecurity rather than just headcount growth. Kotak's report is a wake-up call. Let's hope the Indian IT leadership takes note and doesn't just rely on rupee depreciation for margins. 💪
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