Indian IT stocks experienced a significant downturn on Friday, driven by increasing concerns over disruption from artificial intelligence. Major companies such as Tata Consultancy Services (TCS), Infosys, Tech Mahindra, and HCLTech were among the hardest hit. The trigger for this sell-off was the weaker-than-expected outlook from global technology giant Accenture, which rattled investor sentiment and resulted in the erosion of nearly Rs 1.35 lakh crore in market value from leading IT stocks in a single trading session.
Infosys Leads the Decline
Infosys was the worst performer, with its shares plummeting by more than 8%. Other prominent names, including Mphasis, TCS, Tech Mahindra, LTIMindtree, HCLTech, and Persistent Systems, also recorded losses in the range of 5% to 6%. The widespread sell-off dragged the combined market capitalization of Nifty IT companies down to Rs 21.57 lakh crore, while the Nifty IT index plunged by 6%. This latest rout has further deepened the sector's troubles, pushing the Nifty IT index's decline for the calendar year 2026 to 29%. Investors are increasingly worried that advances in generative AI could reduce the long-term reliance on conventional IT services, creating structural challenges for the industry.
Accenture's Outlook Rattles Markets
Accenture reported revenue of $18.7 billion for the quarter, but its underlying performance raised red flags. The company's shares crashed by 18% following the announcement of its third-quarter results. Accenture lowered the upper end of its fiscal year 2026 revenue growth forecast by 100 basis points, revising the range to 3% to 4% from the earlier 3% to 5%. After accounting for factors such as DOGE-related impacts and inorganic contributions, the updated guidance points to fourth-quarter growth of between -1.0% and +3.0% year-on-year in constant currency terms. This development has challenged market expectations that India's six largest IT companies would experience an acceleration in growth during this period.
Implications for IT Valuations
According to an ET report, Jefferies analyst Akshat Agarwal adopted a cautious stance, warning that Accenture's lower revenue growth outlook suggests additional moderation in business momentum over the coming quarters. He noted that the revised guidance could lead to further downgrades in earnings expectations for Indian IT companies and intensify concerns about their long-term growth prospects and valuation multiples. The brokerage highlighted three key implications for Indian IT firms: first, the softer guidance indicates that growth could weaken further, potentially prompting analysts to trim their estimates; second, sluggish expansion despite a low base may fuel worries about the sector's future trajectory and trigger additional valuation compression; and third, companies may need to explore alternative growth avenues, including mid-sized deals and acquisitions, to compensate for weakness in traditional service lines. Jefferies also pointed out that even after Accenture's 18% decline, the top five Indian IT companies continue to trade at a roughly 70% premium to the global technology consulting giant, leaving room for further downside in valuations.
Nomura, meanwhile, stated that the conflict in the Middle East is likely to affect both revenue growth and deal activity during the first quarter of fiscal year 2027. While Nomura expects near-term revenue growth for Indian IT services firms to remain under pressure due to the Middle East situation, it believes AI-led projects will continue to scale as enterprises transition from pilot programs to real-world implementations. Motilal Oswal described the implications of Accenture's results for Indian IT companies as negative. The brokerage highlighted that outsourcing bookings declined by 14.7% year-on-year, following a sharp slowdown in the previous quarter as well. Motilal Oswal expects most Indian large-cap IT companies to report similarly subdued performance in the first quarter of fiscal year 2027.
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