Blockbuster Accenture show holds out hope for battered Indian IT

Mumbai: Accenture surged more than a fifth Thursday - a record for the global technology services leader and rare for a company with more than $100 billion in market value. It holds out hope for Indian IT - still the Nifty's third largest by weighting after financials and energy - and is a timely reminder to investors that they may have written the $315-billion industry's obituary rather prematurely.

Yet, it would be equally premature to assume Accenture's standout FY26 performance and robust guidance for next year would trigger an immediate re-rating for India's listed outsourcing pureplay.

Investor enthusiasm for Infosys and Wipro American Depositary Receipts (ADRs), which climbed up to 8% on Oct 1, reflects scarcity premium rather than belief in an immediate sectoral turnaround, although some analysts believe the depressed valuations (table attached) adequately reflect the industry's AI-spawned revenue risks.

Against this backdrop, Accenture's earnings at least helped re-establish the industry's commercial viability in the AI era.

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Its healthy book-to-bill ratio shows that tech services companies have regained the ability to translate promises (orders) into reality (sales). Those harnessing AI to make a strategic difference to their clients should see their addressable universe expand - not shrink. Accenture's last FY performance proved that even managed services engagements - or pure-play, cost-focused outsourcing, the mainstay of Indian IT - are becoming more value-loaded.

"Our managed services-led work also includes significant consulting and AI expertise, as many clients use this work to both reinvent and to get greater certainty around outcomes, including cost savings," Accenture CEO Julie Sweet told analysts in the conference call after the earnings. "Against this backdrop, two things stand out. First, our largest client relationships continue to expand as clients take on broader, more strategic transformations. The second standout is how our AI demand is broadening because of both the depth and breadth of our expertise."

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AI-Era Expertise

The key for Indian IT to extract a re-rating from analysts, following this year's 14% retreat in the Nifty IT index, is to help expand this 'depth and breadth of expertise' - something Accenture harnessed for 141 quarterly client bookings exceeding $100 million each. Separately, stable and improving margins close to 16% indicate moderation in pricing pressures, while a 6% revenue guidance - matching the highest in four years - suggests a modest revival in discretionary spending by clients.

"Accenture's results, commentary and guidance are slightly positive for Indian IT. Guidance of recovery in consulting business alludes to early signs of possible recovery in discretionary spends, though not in the immediate future," Nuvama said in a report. "We... maintain that Gen AI will eventually lead to expansion of TAM for Indian IT companies." Not long ago, Tata Consultancy Services (TCS) trumped both Accenture and IBM in the market capitalization sweepstakes. So, re-establishing relevance in the AI era - with billions of dollars in idle cash on balance sheets - shouldn't be beyond the reach of top companies in a sector where India remains the unchallenged global leader.