What Accenture’s Earnings Forecast Means For Indian IT Companies
A strong quarter for Accenture usually bodes well for Indian information technology firms, but this time there are mixed signals.
Accenture Plc raised its revenue guidance for the ongoing financial year, with its products and energy resources businesses driving growth in the quarter ended May, suggesting lower risk from headwinds such as global economic slowdown and U.S.-China trade war.
A strong quarter for Accenture—which follows the September-August fiscal year—usually bodes well for the sentiment of Indian IT companies, but this time there are mixed signals.
The global consulting firm’s revenue rose 8.4 percent over last year in constant currency terms, which was nearer the upper end of its initial guidance of 6.5-8.5 percent. It also raised its full-year revenue forecast to 8-9 percent. Morgan Stanley said in a report that while there’s no one-to-one correlation between Accenture and Indian IT companies, the earnings indicate healthy business trends.
Accenture’s Indian peers Infosys Ltd. and HCL Technologies Ltd. too have raised their revenue forecasts for FY20. Infosys and HCL Technologies ramped up their projections to 7.5-9.5 percent and 14-16 percent, respectively—both higher than Accenture’s.
Goldman Sachs said in a research note that the nature of digital projects are evolving from consulting stage to actual development, auguring well for Indian IT companies where “they have a natural strength given their lower cost per employee relative to global peers”.
Revenue of Accenture’s financial services arm grew 4 percent, which Kotak Institutional Equities and CLSA acknowledged as “mild growth acceleration”. The company, however, indicated further recovery in the vertical. The segment is critical for companies like TCS, Infosys, Wipro Ltd. and HCL, as it contributes at least 20-30 percent of their total revenues.
The number of deal bookings for the Dublin-headquartered company fell by about 9.8 percent in the quarter. Bookings, the company said, tends to be lumpy, adding that it would improve in the ongoing quarter. While that may not have an effect here, Morgan Stanley said it’s important to examine deal bookings of Indian IT companies in the period.