Accenture’s earnings report, announced last week, has boosted market sentiment on a rosy outlook for the $260 billion Indian IT services sector. But gains will take longer to materialize. Mint analyses what lies ahead for the sector:
The $260-billion Indian IT services industry was cautiously optimistic about this fiscal being better than the previous one. Proof of better times came from bellwether Accenture, which provided solace with its numbers and guidance. Its revenue growth guidance for FY25, hiring plans and bullishness on the generative artificial intelligence (GenAI) business have made the industry hopeful of a better FY25 and FY26. Accenture ended FY24 (it follows a Sep-August fiscal) with $64.9 billion in revenue, a 1% growth, and increased its revenue growth forecast for FY25 to 3-6%, almost double the previous forecast.
Growth was positive across most verticals, though banking, financial services and insurance (BFSI), hi-tech and telecom declined. What excited the market was the AI business. Accenture ended FY24 with GenAI order inflows of $3 billion, and $900 million revenue. This is a huge jump from the $300 million in order inflows and $100 million in GenAI revenues in FY23. Q4 alone saw new GenAI deals worth $1 billion. Also, proofs of concept (PoCs) of around $1 million each have now been translated into actual deals, with an average size of around $10 million. This is expected to pick up pace in FY25.
While an uptick in AI business and shift from PoCs to bigger deals was expected, the 50bps US Fed cut on 19 September is likely to increase spending in the BFSI segment. This accounts for 36% of the $260-billion business of Indian IT services companies. The rate cut could also result in higher spending by global firms, leading to improved outlook for tech services.
The Indian IT results season kicks off in October, with HCLTech and Infosys. Accenture’s show and the US rate cut will have an impact. IT stocks rallied between 4% and 6% on 27 September, and have seen 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 as there’s growing competition from global capability centres (GCCs). Besides, Accenture has a strong consulting play, an area where Indian IT services exporters are weak.
Market watchers will be scanning deals in the AI space to see if Indian providers are doing more AI projects now. In FY24, India’s largest services exporter TCS won over 200 deals in AI, with $900 million worth of AI deal pipeline. It has trained half of its 700,000 employees in AI. Most other players do not disclose AI deal business, but projects have to move from PoCs to deals to have an impact on earnings. BFSI, hi-tech and consumer sectors could contribute with the interest rate cut cycle, which started this month.
