Accenture's commentary and its lowering of FY26 guidance have alarmed investors and analysts alike, sparking a debate over whether the dip should be bought or whether the sector has potentially turned into a value trap. There is now a possibility of slowdown in both Q1 and Q2, which are otherwise seasonally strong quarters for Indian IT sector.
Given this backdrop, JM Financial believes there is a risk to its 3 per cent YoY constant currency (CC) industry growth for FY27. The pressure in the sector is likely to remain if earnings cut versus expectations continues in the near term, it said.
"Accenture is trading 9 times one-year forward consensus EPS while TCS and Infosys are trading at 14-15 times. We remain cautious on the sector and relatively prefer stocks underpinned by reasonable operational visibility ‒ relatively prefer a) Infosys in the top 6; Mphasis in the mid-tiers; and Sagility among the BPO names," JM Financal said.
Nomura India also prefers Infosys and suggested a 'Buy' call on the stock. It likes Coforge in mid-caps and eClerx in small-cap space. For Infosys, it suggested a target of Rs 1,640. It suggested a target of Rs 2,100 on Coforge. A target of Rs 2,220 is assigned to eClerx.
PL Capital said Accenture's increased focus on the mid-market segment could intensify competitive pressures for mid-cap Indian IT companies, while weaker Managed Services bookings and the guidance cut suggest
that discretionary spending weakness & delayed decision making, pointing to a weaker H1 for Indian IT peers.
"For Indian IT services companies, the read-through is incrementally negative as the results suggest a softer start to FY27, with limited direct revenue exposure to the Middle East but potential indirect impact through delayed deal closures, slower project ramp-ups and prolonged client decision cycles," it said.
This brokerage has 'Buy' on Infosys (target: Rs 1,570), TCS (Rs 3,450) and Tech Mahindra Ltd (Rs 1,660), Reduce on HCL Tech (Rs 1,300) and Hold on Wipro (Rs 200).
"Accenture for the first time in recent days indicates that some clients are pushing back orders. This was first highlighted by Kyndryl and Epam a few quarters back. Very likely we are going to see this commentary also embraced by some Indian players," BOB Capital Markets said.
The brokerage said while both earnings and PE multiples have corrected since January 2025, the industry’s structural organic revenue growth from here on will be much lower than 7 per cent annually seen during FY15-FY20. It sees a possibly 3-5 per cent CAGR over FY25-FY30 in constant currency (CC) terms.
"We also believe that release of advanced AI models will cause significant disruption to the industry rendering the sector to be a ‘value trap’," it said.
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