Accenture flags macroeconomic fears, casting shadow over global and Indian IT

The early alert, coming in the backdrop of disappointing quarterly earnings in the second quarter (December-February) of the world’s biggest information technology (IT) services company, signals possible tough times ahead for both global as well as the Indian IT industry. Accenture follows a September-August financial calendar.

“In recent weeks, we are seeing an elevated level of what was already significant uncertainty in the global economic and geopolitical environment, marking a shift from our first quarter FY25 earnings report in December,” said Julie Sweet, chief executive of Accenture, as part of her prepared comments in the company’s post-earnings call.

Accenture’s revenue in the first quarter fell 5.8% sequentially to $16.66 billion, although it did increase 5.4% year-on-year. In the third quarter (March to May), the company expects revenues between $16.9 billion and $17.5 billion.

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At the same time, the company did not raise the upper end of its growth guidance of 7% for the full year, reflecting its views on the macroeconomic environment.

Accenture expects to spend up to $3 billion on acquisitions in the fiscal, which translates to almost half of its projected growth this year.

Why revenues fell

Much of the decline in the second quarter business was caused by US government agencies and hospitals. The company also said that its revenue would be impacted by the Trump administration relooking federal contracts.

“As you know, the new (Trump) administration has a clear goal to run the federal government more efficiently. During this process, many new procurement actions have slowed, which is negatively impacting our sales and revenue,” said Sweet. Federal contracts made up 8% or $5.2 billion of Accenture’s $64.9 billion revenue last year.

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Sweet added that the US government had instructed federal agencies to review their contracts with the country’s 10 largest consulting firms including Accenture Federal Services and determine those that are not mission critical.

“While we continue to believe our work for federal clients is mission critical, we anticipate ongoing uncertainty as the government’s priorities evolve and these assessments unfold,” added Sweet.

Phil Fersht, chief executive of HFS Research, a Massachusetts-based tech advisory firm, said Accenture is just being cautious in the current volatile business climate. “The impact of tariffs and uncertainty is delaying some contract decisions as enterprise leaders wait for the current macro situation to calm down,” he said.

India expectations

Accenture’s views echo those of analysts who have already flagged uncertain macroeconomic conditions, especially in the context of the Indian IT services industry.

Also read | Why IT services firms don’t offer full-year guidance but set lofty goals

In the past three weeks, four brokerages—Morgan Stanley, Kotak Institutional Equities, Motilal Oswal Financial Services, and JM Financial—have forecast slower-than-anticipated growth for India’s $283-billion IT industry in FY26.

This gloomy outlook comes on the back of high lending rates, geopolitical uncertainty, and threats of additional tariffs by the new Donald Trump administration in the US.

Accenture’s dim outlook stokes further uncertainty for India’s five largest software service providers including Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd, which are expected to announce their FY25 earnings next month.

In particular, Accenture’s commentary on federal uncertainty is expected to impact Nasdaq-listed Cognizant Technology Solutions Corp, which acquired Belcan in June last year for $1.3 billion. Belcan gets 40% of its business from US federal contracts.

With the US Department of Government Efficiency (DOGE) led by Elon Musk clamping down on government spending, sectors that contribute to Belcan’s growth may suffer.

Also read | Q3 throws focus on deal cycle, tenure for India’s biggest IT service providers

The bright spot

Despite the uncertainty and fall in earnings, there was a bright spot for investors in the form of generative AI (Gen AI).

Accenture secured $1.4 billion in new Gen AI bookings in the quarter-ended February 2024, which comprised 6.7% of the company’s overall order bookings of $20.9 billion for the quarter. In the same quarter, Accenture got revenues of $600 million from Gen AI projects. So far, since September 2023, the company has taken its total tally of orders in Gen AI to $5.6 billion.

For context, Accenture’s total order bookings from Gen AI alone are more than the FY24 revenue of LTIMindtree Ltd, India’s sixth largest software services company. LTIMindtree reported $4.3 billion in revenue last year.

Also read | Indian IT’s AI conundrum: What model to use—ready-to-build or build-from-scratch

Accenture was the first software services company to state its Gen AI deal value. This is in contrast to homegrown IT service providers who are yet to spell out revenue or confirmed orders from the new technology.