Accenture's latest quarterly results and lowered full-year guidance point to persistent challenges for the IT services industry. A Kotak Equities report cites weak discretionary spending and geopolitical headwinds, suggesting no imminent recovery.
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's Performance and Revised Guidance
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."
Middle East Conflict Adds to Headwinds
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."
Persistent Spending Pressure and Deal Delays
Kotak highlighted that discretionary spending remains under pressure, while several large deal opportunities have been pushed into FY2027 due to client-specific reasons.
Bookings Weaken, Managed Services Decline
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.
Concerns Over Acquisition Strategy
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.
AI Adoption Trends
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."
Outlook for Indian IT Companies
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)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)