Accenture’s earnings report, announced last week, has boosted market confidence amid an optimistic outlook for India’s $260 billion IT services sector. But progress will take longer to materialize. Mint analyzes what awaits the sector:
What do Accenture’s results indicate?
India’s $260 billion IT services industry was cautiously optimistic that this fiscal year would be better than the previous one. Proof of better times came from leader Accenture, which provided comfort with its numbers and guidance. Its FY25 revenue growth guidance, hiring plans and optimism in the generative artificial intelligence (GenAI) business have the industry hopeful for a better FY25 and FY26. Accenture ended the year FY24 (follows a September-August fiscal year) with $64.9 billion in revenue, up 1%, and raised its FY25 revenue growth forecast to 3-6%, almost double the previous forecast.
What were the areas of growth?
Growth was positive across most verticals, although banking, financial services and insurance (BFSI), high-tech and telecom declined. What got the market excited was the AI business. Accenture ended FY24 with GenAI order intake of $3 billion and revenue of $900 million. This is a big jump from GenAI’s $300 million in order entries and $100 million in revenue in FY23. New GenAI deals occurred in Q4 alone worth billion dollars. Additionally, proofs of concept (PoC) of around $1 million each have now translated into live deals, with an average size of around $10 million. This is expected to accelerate in FY25.
What will be the impact of the US interest rate cut?
While a pick-up in AI business and a shift from PoC to larger deals was expected, the US Federal Reserve’s 50 bps cut on September 19 is likely to increase spending in the BFSI segment. This represents 36% of the $260 billion business of Indian IT services companies. The rate cut could also result in higher spending by global companies, leading to better prospects for technology services.
What will be the impact on Indian IT?
India’s IT earnings season begins in October, with HCLTech and Infosys. The Accenture show and the US rate cut will have an impact. IT stocks rose 4% to 6% on September 27 and have been on a good run in recent weeks, anticipating a turnaround. But for Indian IT, even as the market is improving, gains will take longer to materialize due to increasing competition from global capability centers (GCCs). Additionally, Accenture has a strong consulting business, an area in which Indian IT services exporters are weak.
What can boost Indian IT profits?
Market watchers will explore deals in the AI space to see if Indian vendors are doing more AI projects now. In FY24, TCS, India’s largest services exporter, won over 200 deals in AI, with a pipeline of AI deals worth $900 million. It has trained half of its 700,000 employees in AI. Most other players do not disclose AI deals, but projects must move from PoC to deals to have an impact on profits. The BFSI, hi-tech and consumer sectors could contribute to the interest rate cut cycle, which began this month.
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