Accenture Plc has lost over 5% in market value after announcing weaker-than-expected results last week for the quarter ended November. What are the implications for large Indian information technology (IT) companies, which compete with the US-based technology services and outsourcing firm? Investors in Indian IT stocks have shrugged it off–National Stock Exchange’s CNX IT index has been flat during the period.
It must be noted here that large Indian IT companies have met analysts lately and given an update of their businesses, thanks to which investors haven’t had to rely much on signals coming from Accenture’s results. Infosys Ltd, for instance, told analysts that the demand environment continues to be weak, and led some of them to conclude that the company may lower its annual growth guidance to 3.5% compared with the current growth target of 5%.
Tata Consultancy Services Ltd, on the other hand, sounded much more positive, having told analysts that the impact of furloughs and fewer working days in the December quarter haven’t surprised negatively. Earlier in the month, Cognizant Technology Solutions Corp. said its board had set a revenue growth target of 16% for 2013, which will be used as a base to determine whether its top executives will earn 100% of their equity incentives for the year. Both TCS’s and Cognizant’s shares have done well since these statements.
In sum, the December quarter can be expected to play out in the same fashion it has in the past many quarters, which means some players do relatively better than others in a difficult demand environment. Both TCS and Cognizant have said growth is expected to be lower in the December quarter and in 2013, respectively. But, at least these companies are growing in double digits.
Accenture’s results, too, point to the fact that growth is slowing. Its consulting revenues were flat quarter-on-quarter and growth in the outsourcing business segment slowed to 13% compared with the preceding quarter (18%). Order bookings fell 4% year-on-year to $7.5 billion. The silver lining was the fact that the company maintained its annual revenue growth target of 5-8%.
But, as pointed earlier, in the midst of this difficult environment, some companies are gaining at the expense of others. This trend should continue in the near-term. In the medium term, things could get worse if reports about Infosys getting aggressive with pricing come true. Already margins of most top companies have been under pressure, and TCS told analysts that margins are expected to be volatile. Apart from trends in volume growth, investors will also be keenly looking at pricing and profitability.