After facing a rough period, analysts believe the Indian IT sector is on track for a sustainable earnings recovery, a view strengthened by Accenture's Q1 performance. On Thursday, the global consulting firm reported a revenue of $17.7 billion for the September-November quarter (Q1) of FY25, marking a 9% year-on-year (YoY) increase in dollar terms and an 8% rise in local currency. The company's revenue exceeded its top-end guidance by approximately $240 million.

Accenture has raised its FY25 revenue growth forecast to 4-7%, up from the previous 3-6%, reflecting an inorganic contribution of slightly more than 3%. Analysts at Emkay Global Financial Services have noted that consensus estimates for Indian IT companies for FY26 predict improved discretionary spending, supported by Accenture's Q1 revenue beat and FY25 guidance upgrade. A rise in technology spending in CY25 will depend on macroeconomic stability and the resilience of the US economy.

On the Indian stock market, the Nifty IT index saw a 1.5% increase, with key stocks like TCS, Mphasis, Wipro, Persistent Systems, and Infosys trading higher. Accenture's strong Q1 revenue growth was driven by sectors such as Health and Public Services (up 12%), Products (up 10%), and Telecommunications, Media, and Technology (up 7%). Revenue from Outsourcing rose 11%, while Consulting grew 6%.

Regionally, the Americas saw an 11% YoY increase in LC revenue, Europe, Middle East, and Africa (EMEA) grew 6%, and Asia Pacific markets grew 4%. Accenture's bookings rose 1.4% YoY to $18.7 billion, with 30 client wins. Despite strong growth driven by large deals, Accenture noted that clients remain focused on major reinvention projects, with smaller deals under pressure.

Analysts at Nomura predict revenue growth for large-cap Indian IT companies to improve in FY26, forecasting a 7.6% YoY growth, up from the 3.8% expected for FY25. The upcoming interest rate cuts and post-US elections may boost demand. Goldman Sachs analysts also expect gradual improvement in demand, particularly in the US, with Infosys and LTIMindtree as potential beneficiaries of a discretionary demand revival.

Accenture maintains its guidance for operating margin expansion, expecting a rise of 80-110bps to 15.6-15.8% in FY25. Despite competitive pricing and constrained budgets, consulting and managed services are expected to see mid-to-high single-digit growth.

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