IT services and consulting major Accenture, whose performance is seen as a bellwether, recently declared its quarterly numbers and, if it is any indication, Indian IT services companies may see near term headwinds specially in BFSI and telecom sectors, say analysts.

According to Ray Wang, Principal Analyst & Founder, Constellation Research, Indian IT services firms face three forces - exponential efficiency where clients seek maximum cost savings, AI arbitrage where AI and automation investments must deliver ongoing and increasing levels of efficiency, and stagnant macro-economic challenges.

He noted that the demand is flat, and most service firms will be lucky to eke out moderate single digital gains in general. Buyers are caught between cost savings, digital transformation projects, cybersecurity, and debate on the level of AI investment, lengthening decision-making cycles.

Companies are also currently prioritizing cost reduction and operational efficiency projects.

According to Wang, Accenture’s $2B in AI revenues were the bright spot in earnings. The global IT services company invested heavily in AI, which has been paying off. The move from proof of concept (POC) to paying projects has happened faster at Accenture.

“We can expect a slower adoption in general for the Indian IT firms, though Infosys seems to be gaining ground in this area,” he said.

Sector-wise, IT analyst Pareekh Jain, CEO at Pareekh Consulting and EIIRTrend noted that while Accenture’s earnings in the banking, financial services, and insurance (BFSI) and telecom sectors took a hit, the same will remain true for Indian IT industries.

However, another IT analyst, Omkar Tanksale, Axis Securities Limited noted that Indian firms may recover in the sectors compared to the previous quarter and that the year-end phase will likely be strong. Otherwise, manufacturing, automobile, retail, pharmaceutical, and healthcare industries are witnessing strong traction across geographies.

According to Wang, the green shoots for Indian IT firms are increased work in public sectors, growth in sovereign AI and post-breach cybersecurity resilience. On the other hand, Tanksale noted some green shoots on the deal front and the margin front, managing operating cost, cost optimization, and moderated demand.

Jain noted that Accenture is riddled with challenges similiar to what the Indian IT industry faced last quarter. However, if consulting and GenAI-led digital investments pick up in the next quarter, discretionary spending will return to normal, he added.

While IT firms may get large deals or orders, it is not translated to revenue, said Jain. Despite large transformation deals, discretionary spending is not returning to normal.

“In India, Accenture has narrowed down the guidance range, and I do not see any recent upscaling. A trigger point is that deals will remain resilient. In Indian IT companies, on the demand side, for Q1FY25 I do not see any strong upscaling.”

“Demand growth may remain moderated for a few quarters; H2FY25 might gain a strong growth momentum. But deals will likely remain strong even in the first quarter Q1FY25. Soon as uncertainty gets eliminated, we can see a strong recovery in the IT space,” said Tanksale, adding that Indian firms will maintain the guidance and not lower it.

While Accenture hired over 7880 people in Q3, there have been alleged continued layoffs for highly paid, senior workers. Regardless of the fear around GenAI adoption replacing jobs, there is no decline in short-term hiring, said Jain.

However, India’s IT service providers experienced a general decline in headcount in FY24. “The larger concern was that if GenAI picks up, hiring will decline. Even if that might still happen, the pace is not very high. Both hiring and GenAI adoption can happen simultaneously and that’s a good sign,” he said.

Analyst Tanksale stated that Indian IT firms’ margins will likely expand since they will hire slowly. “Managing operating expenses has bottomed out and might be under control. They have reduced on-site expenses.”