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Business News/ Market / Mark-to-market/  Accenture results no pointer to Indian IT performance
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Accenture results no pointer to Indian IT performance

It makes sense for investors to not assume that Accenture's impressive growth necessarily means that there is a recovery in IT spending

When Accenture again beat Street expectations for its fourth quarter ended August, investors have preferred to take it easy. Photo: Ramesh Pathania/MintPremium
When Accenture again beat Street expectations for its fourth quarter ended August, investors have preferred to take it easy. Photo: Ramesh Pathania/Mint

Once bitten, twice shy. Investors in Indian IT stocks had become excited at the end of June, when Accenture Plc. reported better-than-expected results for its third quarter ended May. As it turned out, India-based IT services companies disappointed on growth in the June quarter.

When Accenture again beat Street expectations for its fourth quarter ended August, investors have preferred to take it easy. The CNX IT index fell by 0.95% on Monday, in line with the fall in the broad markets. It makes sense for investors to not assume that Accenture’s impressive growth necessarily means that there is a recovery in IT spending. This is simply because there has been a vast difference between the performance of the company and India-based peers for quite some time.

Accenture said in the past year, digital-related services grew approximately 35% to more than $7 billion. Total revenues grew by 11% in local currency to $31 billion; implying that digital-related services accounted for about three-fifths of incremental revenues. None of the India-listed companies can claim to have such a large presence or influence of digital-related services. As such, it doesn’t make any sense to extrapolate Accenture’s performance for Indian IT.

Accenture’s management told analysts in post-results conference call that dominant drivers of its growth continued to be strong double-digit growth in digital-related services and operations, and added later that they expect growth in the segment to remain strong in double-digits in the new fiscal year. Analysts at JP Morgan point out in a note to clients, “In addition to organically building capability, Accenture has made nearly 25 tuck-in acquisitions or investments in digital/SMAC over the past two years—the company considers an active M&A agenda integral to its end-to-end positioning in digital, because it is not easy for companies to organically play across the digital stack, cutting across technologies, segments, functionalities and platforms. In fact, Accenture has acquired four digital-related businesses in the last month (from August 18 to now)."

Cognizant Technology Solutions Corp., another large outsourcing company to have had success in the digital space, has resorted to a number of acquisitions in the past two years as well. India-based companies have been far more cautious, although Infosys Ltd has begun making some interesting acquisitions in the digital space.

Of course, all this is not to say that local companies will not benefit from the shift towards spending in digital-related areas. But it does seem that their gains, just like their investments, will come with a lag.

The writer does not own shares in the above-mentioned companies.

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Published: 28 Sep 2015, 07:29 PM IST
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