Accenture triggers 1% Sensex, Nifty drop as IT rout ends rally

The five-session winning streak ended Friday. The Sensex fell 830 points to 76,680. The Nifty dropped 199 points to 23,969. Both indices lost about 1 percent. The trigger came from a single earnings call in New York.

Accenture trimmed its full-year revenue growth forecast late Thursday. The consulting giant's shares plunged 18 percent. Cognizant fell 11 percent. Capgemini dropped nearly 9 percent. Infosys ADRs tumbled 10 percent. Wipro ADRs lost 3.6 percent. The selloff carried into Friday's cash session in Mumbai.

The Nifty IT index collapsed 6 percent to 26,634.50, a fresh low. Infosys fell 7 percent. TCS lost 6.5 percent. Tech Mahindra and HCLTech each dropped close to 6 percent. Mphasis, Persistent Systems and Coforge declined 4 to 6 percent. The index saw its steepest single-day drop in months.

Selling pressure spread across sectors. The Nifty Midcap index fell 0.44 percent. The Smallcap index slipped 0.10 percent. The India VIX, a measure of implied volatility, climbed 6 percent to 13.46. Breadth was negative: 1,523 stocks declined against 1,103 advances on the NSE.

A few stocks bucked the weakness. Adani Enterprises, NTPC, Sun Pharma, Trent and Bharti Airtel traded higher. In the midcap space, GVTD, Tata Communications, Aurobindo Pharma and Waaree Energies gained 1 to 2 percent.

The selloff reversed a strong rally. Over the previous five sessions, the Sensex and Nifty had gained 4.3 to 5 percent. That move was fuelled by falling crude prices after the US-Iran peace deal and optimism around the India-UK free trade agreement. The Accenture news erased those gains in a single session.

VK Vijayakumar, chief investment strategist at Geojit Investments, said the guidance cut triggered selling in Indian IT ADRs. He added that it could lead to further near-term correction in domestic technology stocks. Buying interest may emerge at lower levels as valuations become more attractive, he said. "The market structure indicates that buy on dips can turn out to be a good strategy today," Vijayakumar said.

He pointed to improving macroeconomic conditions from the sharp drop in crude prices. Short covering by foreign institutional investors has aided a recovery in banking stocks, he noted. The moderation in FII selling, combined with strong domestic institutional inflows, could support the broader market.

The US market rally that accompanied the Iran peace deal report did not carry over into Friday's session. The S&P 500 rose 1.1 percent overnight. The Nasdaq Composite jumped 1.9 percent. US markets were closed Friday for the Juneteenth holiday. Asian markets in Hong Kong, China and Taiwan were also shut. That limited the ability of Indian traders to take cues from global peers.

Several markers lie ahead. The first is whether the Nifty IT index holds above 26,000. A break below that level would expose the March low. The second is Reliance Industries' annual general meeting, where announcements around its new energy business and a potential Jio IPO are expected. The third is the June derivatives expiry, which falls next week.

Accenture's Alpha Score stands at 47 out of 100, a Mixed rating. The stock's guidance cut has reset expectations for the entire IT services sector. The next session will test whether the selling extends or stabilizes."

"Investors will closely track Reliance Industries' AGM for announcements related to its new energy business and the potential Jio IPO," Vijayakumar said.