Mixed bag for Indian IT: What Accenture's earnings imply for TCS, Infosys, others

Going forward, domestic IT companies who have the same client profiles as Accenture will have better revenue realisations

Accenture's mixed performance in Q3 signals that Indian IT companies with similar clientele and services will perform better in upcoming quarterly results starting July 11, according to analysts. TCS, which is closer to Accenture's size, and Infosys, which resembles its clientele, will perform better when compared to other large-tier Indian heritage IT companies.

This is because Accenture's managed services vertical performed well, which is also the forte of the above-mentioned Indian IT firms.

Accenture's revenue from managed services increased by 2 percent to $8.01 billion for the quarter.

Analysts also say mid-tier IT companies might bear the brunt from the onslaught of their larger peers as the race to grab large deals intensifies. This is because cost takeout deals generally go to larger companies, in a tough macroeconomic environment such as now.

The Dublin-headquartered firm tightened its revenue forecast for fiscal year 2024 on June 20, in the range of 1.5 percent to 2.5 percent, compared to its earlier projection of 1 percent to 3 percent. The IT giant saw its Q3 revenue decrease by 1 percent from the year-ago period at $16.5 billion.

What caught the attention of investors and analysts was the impressive performance of Accenture in large bookings and Generative Artificial Intelligence (Gen AI) deals. While new bookings increased by 22 percent to $21.1 billion, Gen AI bookings came in at over $900 million in the quarter. This takes the total generative AI bookings to $2 billion for the fiscal year to date.

“It means that Indian companies like TCS and Infosys… are well placed as they are very similar to Accenture in terms of work,” said Gaurav Parab, principal research analyst of outsourcing analyst firm NelsonHall. Adding TCS and Infosys have made investments in the right area such as training their workforce on Gen AI.

Accenture Chief Executive Officer Julie Sweet said the company's workforce includes approximately 55,000 skilled data and AI practitioners. "(This is) against our goal of doubling our data and AI workforce from 40,000 to 80,000 by the end of FY26," she told analysts after declaring the results.

Also read: Accenture’s headcount increases by almost 8,000 in Q3 of FY24

Parab further said that some large IT companies and even their mid-tier peers are unable to win large deals, which shows the divergence in the performance of Indian IT companies.

Management consulting firm Everest Group’s technology services research leader Yugal Joshi concurred, saying Q1 performance will be “company-specific and not Indian IT specific.”

He further said that Indian IT service companies are a lot more competitive in reacting to the need of the hour such as cutting prices, which is unlike a global player like Accenture.

Joshi highlighted that Accenture’s technology and operations business has started to mirror a lot of large Indian IT companies, which implies there’s a high probability that these players will follow a very similar trajectory.

Analysts said the way Indian IT services deliver services, the go-to-market strategy, and the cost of the go-to-market strategy is different. “Net of it, too hazy and too hotchpotch,” Joshi said.

Going forward, domestic IT companies who have the same client profiles as Accenture will have better revenue realisations, given the robust large deal bookings.

Also read: IT stocks unfazed by Accenture's narrow FY24 guidance, Street cheers Q3 deal pickup

Even brokerage firms, such as Nomura and Nirmal Bang Securities, believe that it is too early to say whether a turnaround for the IT sector is in the offing. “We are not sure how much of this is ACN (Accenture) specific. We maintain our ‘underweight’ stance on the Indian IT Services sector, which we had initiated 27 months back,” the brokerage firm said in a note.

The domestic brokerage firm believes that the ‘slower for longer’ phenomenon could lead to further downward revisions in revenue and earnings for FY25 and possibly even FY26.

“We expect operating performance to vary across our coverage universe in FY25-26F,” Nomura said. The brokerage further said that revenue growth for large-caps should improve in FY25, driven by cost take-out deals.

Also read: Accenture’s Q3 earnings report: any cheer for Indian IT?

"The Accenture results should be read more in context of how it positions it for future performance as the disruption in the last 12 months across industries (like BFSI and telecom) and regions due to geopolitical and economic triggers has affected every provider," Parab added.