Domestic IT firms are expected to remain largely unaffected by US government spending cuts, analysts said, even as Accenture flagged concerns over delays and cancellations of federal contracts due to cost-cutting measures initiated by the Donald Trump administration.
On Friday, shares of IT firms, including Infosys, Tata Consultancy Services (TCS), Wipro, Tech Mahindra, and HCL Technologies, declined by as much as 3% during intraday trading on the National Stock Exchange. However, they rebounded after analysts and brokerage firms reassured investors that they have no direct exposure to US federal government contracts and are therefore insulated from the potential negative impact of federal budget reductions.
Nomura said that unlike Accenture, domestic IT companies do not depend on US federal contracts, and while macroeconomic uncertainty might make clients cautious, Accenture’s management noted no major project pauses.
Accenture said that the US administration, under Trump, had directed the Department of Government Efficiency (DOGE) to implement stringent cost-cutting measures, leading to reduced procurement decisions. The company’s CEO, Julie Sweet, stated in an earnings call that the federal government contributed approximately 8% of Accenture’s global revenue and 16% of its Americas revenue in FY24. She further said that the US General Services Administration had instructed federal agencies to review contracts with consulting firms and terminate those deemed unnecessary.
“It’s still early, and a lot can happen. Clients may shift focus, accelerating cost-cutting rather than investing in new projects,” Sweet said, underscoring the uncertainty surrounding the current business climate.
Despite the apparent insulation of domestic IT firms, brokerages cautioned investors, noting that Accenture reiterated that the overall demand environment and client budgets for the calendar year 2025 have not shown any significant improvement.
JM Financial pointed out that an increasingly uncertain economic environment, flat client budgets for CY25, and a lack of change in discretionary spending do not provide an optimistic outlook for the sector.
HSBC echoed similar sentiments, observing that Accenture’s second-half guidance reflects an unchanged demand landscape, with IT services outperforming consulting. The brokerage highlighted that while there has been no sharp decline in discretionary spending, the outlook remains cautious. However, it acknowledged that IT stocks have already corrected by 18% from their 2025 peak, driven by fears of a US market slowdown. Nevertheless, large deal momentum has not deteriorated significantly.
Nuvama added that while uncertainty looms over the global tech sector, IT companies have minimal exposure to the US federal government, keeping them largely insulated from these cuts. The firm maintained a positive medium-to-long-term view on the IT sector, despite acknowledging near-term volatility.
Nomura projected that growth for IT firms is likely to bottom out in FY25 and that while a strong discretionary spending recovery could take a few quarters, the situation is unlikely to worsen significantly unless there is a sharp deterioration in macroeconomic conditions.
Accenture on Thursday reported a 6% quarter-on-quarter decline in Q2 revenue, bringing the figure down to $16.7 billion, while its operating margin contracted to 13.5% from 16.7% in the previous quarter. However, the company saw a surge in new bookings, rising to $20.9 billion from $18.7 billion, with $10.5 billion in consulting and $10.4 billion in managed services bookings.
Despite short-term challenges, Generative AI (GenAI) continues to be a crucial growth driver for Accenture. The company secured $1.4 billion in new GenAI bookings in Q2, up $200 million from the previous quarter. “Our clients are focused on reinvention, and GenAI is a key part of that transformation,” Sweet stated.
Accenture also adjusted its annual revenue growth forecast for FY25, raising the lower end of the projected range from 4-7% to 5-7%, citing an increasing demand for AI-based solutions.
Motilal Oswal Financial Services highlighted that IT firms investing in data engineering and security frameworks are in a stronger position to scale GenAI-driven solutions. The firm believes that automation and AI integration will drive streamlined operations, increased efficiency, and long-term value for IT service providers.
