Morgan Stanley has expressed a cautious stance on Indian IT services companies following Accenture’s Q2FY25 results and updated FY25 guidance. While the global IT major’s revenue outlook for FY25 was in line with Morgan Stanley’s expectations, the brokerage noted that commentary around rising macroeconomic uncertainty and stagnant client budgets raises concerns for the FY26 revenue trajectory of Indian IT firms.
Accenture’s Q2 results showed notable resilience, with the company beating estimates and revising its FY25 revenue growth guidance to the lower end of its earlier range. One of the key positives highlighted by Morgan Stanley was an improvement in the financial services segment, a critical vertical for Indian IT companies.
However, the brokerage flagged several areas of concern:
- The margin expansion target has been lowered, indicating pressure on profitability.
- Discretionary spending by clients remains constrained, hinting at a continued drag on project-based and transformation-led services, which are typically higher margin.
Morgan Stanley believes that while near-term performance remains stable, the muted commentary on client spending and budget caution could weigh on FY26 growth for Indian IT services companies. The firm is likely to monitor trends in BFSI and consulting demand closely as leading indicators for sector performance.
This view adds to a mixed sentiment across brokerages, with some others like Jefferies and HSBC taking a more neutral to slightly positive view, particularly highlighting North America and BFSI strength as bright spots.
As earnings season continues, market participants will watch closely for similar signals from Indian IT majors such as Infosys, TCS, Coforge, and HCLTech.
Disclaimer: This article is for informational purposes only and is not a recommendation to buy or sell any stock. Please consult a certified financial advisor before making investment decisions.
