Global IT giant Accenture reported Q2FY25 revenue of $16.7 billion, growing 8.5 per cent y-o-y in local currency, but its commentary indicated that discretionary spending was under pressure. Since Accenture is seen as a bellwether for Indian IT companies — whose results season kicks off next month — the outlook for FY26 remains uncertain.
While the BFSI sector has shown signs of stability, broad-based recovery in discretionary spending is yet to materialise.
Discretionary spending refers to non-essential expenditures that businesses can choose to allocate based on their financial strategies, operational priorities and long-term growth plans. Analysts note that while the situation is not worsening, expectations of a strong revival are fading.
Strategic shift
DD Mishra, VP Analyst at Gartner, commented, “Accenture is undergoing strategic restructuring and regional adjustments to align with evolving market demands and organisational goals. It utilises an organic and acquisitive investment strategy. Acquisitions play a key role in maintaining its leadership position and continuing to drive revenue growth in an extremely competitive and challenging environment. The clients control their discretionary spending and geopolitical headwinds are slowing down overall growth in the IT sector.”
While Accenture had projected revenue growth of 4-7 per cent in constant currency (CC) in the first quarter of FY25, it later revised its growth guidance to 5-7 per cent CC for the full fiscal in the February-ended quarter. Brokerage firm Motilal Oswal Financial Services said the results reinforce the cautious sentiment around discretionary spending in IT services, which remains constrained, particularly for smaller deals.
“The expectation that discretionary spending would revive in areas like US Banking, Healthcare, and Hi-Tech due to factors such as rate cuts, a business-friendly administration, and pre-GenAI spending has not fully materialised, as the landscape over the past six months has shifted — US rate cuts now seem less imminent. Geopolitical/ tariff risks have introduced new uncertainties for enterprises in the US and Europe. Accenture’s commentary suggests clients focus on cost efficiency and large-scale transformation rather than incremental IT services spending,” it said in a report.
Spending Uncertainty
While banking and capital markets have seen some improvements, overall discretionary spending remains largely stable. However, smaller deals continue to face headwinds due to cautious client budgets. Macroeconomic and political factors — like tariffs and shifting consumer sentiment — are also adding to the uncertainty.
On the other hand, Accenture’s Managed Services business showed greater growth compared to Consulting.
Pareekh Jain, Founder of Pareekh Consulting & EIIR Trend, said the consulting business tends to grow first when a new technological wave emerges.
“We were hoping for large GenAI deals and discretionary spend recovery, which will impact the ecosystem positively. But now, we are seeing uncertainties in the market.”
The consulting order books are not picking up due to the absence of large-scale transformation deals in GenAI. He noted that while Indian IT industry players initially expected FY26 to be stronger, the outlook has shifted. A revival isn’t taking place, but the situation isn’t deteriorating either.
“Typically, Infosys and tier II companies give the guidance and that sets the tone for everyone. Whether it will be better than FY25 or similar, we don’t expect a fall. It’s a relief it is not going downhill but overall, it’s moderate and not going up either,” Jain shared.
