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Guidance Cut and Delayed Deal Conversions Reinforce a Gradual Recovery Path for Indian IT

We view the quarter as a cautiously mixed read-through for Indian IT services. While continued strength in Managed Services, resilient BFSI spending and accelerating AI adoption support the medium-term demand outlook, near-term commentary remains less encouraging. Weak bookings, elongated deal cycles, Middle East-related disruption and continued pressure on discretionary spending suggest that the recovery trajectory remains gradual rather than broad-based. Overall, ACN's commentary suggests that AI is becoming an increasingly meaningful demand driver; however, it remains insufficient to offset nearterm weakness from discretionary spending pressures, elongated deal cycles and delayed large-program conversions. Therefore, we continue to expect a gradual recovery trajectory for Indian IT rather than a broad-based acceleration in FY27. Within Tier-1, we prefer INFO and TECHM and among mid-caps we have PSYS and COFORGE as our preferred ideas.

Revenue Holds up, but Underlying Demand Signals Remain Mixed

ACN reported Q3FY26 revenue of USD 18.7 Bn (+3% CC YoY), driven by continued strength in Managed Services (+5% CC YoY), while Consulting remained subdued (+1% CC YoY). Growth was broad-based across geographies and business verticals, partially offset by weakness in the Middle East. Importantly, the management highlighted an approximately USD 100 Mn revenue impact from geopolitical disruption, alongside emerging softness in discretionary spending across Products and Resources towards quarter-end. While reported growth remained resilient, underlying demand trends continue to reflect a selective spending environment rather than a broad-based recovery.

Guidance Cut Reflects Continued Caution despite Margin Resilience

EBITM expanded 20 bps YoY to 17.0%, while EPS grew 9% YoY, underscoring continued execution discipline despite ongoing investments in AI, talent and acquisitions. ACN narrowed down its FY26 revenue growth outlook to 3–4% in cc, cutting the top end of the prior guidance range of 3–5%. Excluding 1% drag from its US federal business, ACN expects to grow at 4–5% while acknowledging that full guidance range remains achievable given persistent macro uncertainty and slower client decision-making. Notably, ACN cited continued Middle Eastrelated disruption and delayed conversion of certain large opportunities into revenue, suggesting that visibility on discretionary spending recovery remains limited despite improving underlying activity levels

AI Momentum Builds; Delayed Deal Conversions Weigh on Growth Visibility

Bookings declined 3% cc YoY to USD 19.3 Bn; the management indicated that several large managed-services contracts have shifted to FY27E due to clientspecific delays. While this reinforces that deal conversion cycles remain elongated, commentary around AI was incrementally constructive. ACN added another 100 advanced AI engagements in this quarter and highlighted growing traction in production-scale deployments, with enterprises increasingly moving from experimentation toward enterprise-wide transformation programs. We believe the key takeaway is that AI demand continues to build-up and remains additive to technology spending; however, the pace of monetisation remains insufficient to offset near-term weakness from discretionary spending pressures and delayed large-deal closures.

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