IT Services: No gloom & doom

Accenture paints a rosy picture, clocks double-digit growth across verticals in Q2

Increasingly, analysts in India are questioning the cautious commentary coming out of Indian software services companies. Accenture’s second quarter (ended February) numbers definitely contradict the muted outlook that Indian companies have been painting for a while. At the end of the second quarter, revenues of Accenture are up 12 per cent year-on-year to $6.8 billion in dollar terms.

New bookings of $7.9 billion also suggest the environment is healthy. Interestingly, growth in outsourcing, which has been 20 per cent, has outpaced consulting, which grew by eight per cent only. Accenture’s management has conveyed that it expects new bookings for FY12 to be at the upper half of the $28-31 billion outlook. Also, the growth has been robust across verticals.

So what does this mean for Indian software companies? According to Citi Investment and Research Analysis (Cira), while this is positive for information technology (IT) spending patterns, the results/commentary is in sharp contrast to the cautious one of Indian IT majors (Infosys and more recently, TCS). Also, given that over 60 per cent of its headcount addition is in lower cost locations, Cira analysts believe competitive intensity for Indian companies is set to rise. The only similarity between the commentaries of Accenture and Indian companies is that discretionary spends are likely to remain slow in the coming quarters.

HSBC Global Research says while it is too early to say if Accenture was more aggressive on pricing and gaining market share from Indian companies, as evidenced by the fall in margins in this business, the company is certainly positive on the demand outlook. If nothing else, analysts believe Accenture’s results certainly decimate the theory of a weak demand scenario. All eyes will be on Infosys’ FY13 guidance.

HSBC Global Research says while it is too early to say if Accenture was more aggressive on pricing and gaining market share from Indian companies, as evidenced by the fall in margins in this business, the company is certainly positive on the demand outlook. If nothing else, analysts believe Accenture’s results certainly decimate the theory of a weak demand scenario. All eyes will be on Infosys’ FY13 expectation.