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Economy

Accenture earnings signal tough times ahead for Indian software exporters

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MUMBAI (NewsRise) -- U.S. consulting and outsourcing company Accenture's quarterly earnings and outlook spell bad news for India's software services exporters, as the numbers underscore that a pickup in revenue growth is unlikely for them anytime soon.

On Thursday, Accenture reported a 4.7% rise in net revenue at $8.32 billion for the quarter ended Feb.28. While demand for its digital, cloud and security-related services accounted for more than 45% of the revenue, the earnings showed that the company's consulting business grew at the slowest pace in more than a year.

Accenture said its growth outlook is largely driven by demand for digital business. But for India software exporters, digital technologies contribute only a limited portion of the overall revenue. For India's top software outsourcing companies such as Tata Consultancy Services, Infosys and Wipro, revenue from digital services account for barely 15% to 23%. On the other hand, Accenture spends nearly $1 billion a year on acquisitions to bulk up its digital revenue. 

"Accenture's lead in digital revenues and strong double-digit growth should continue to keep alive investor concerns on whether Indian IT will benefit as much on digital," Nomura said in a report on Friday. Nomura reiterated a "cautious stance" on Indian IT sector's growth, after Accenture showed "signs of slowing, after material outperformance."

Meanwhile, Accenture's growth in North America has slowed in the last quarter, indicating a tough demand environment in the largest revenue generating market for Indian software companies. While Accenture's outsourcing business -- the bread-winner for Indian IT -- showed a robust 7% growth, the company indicated stiff pricing pressure in the traditional application maintenance business that accounts for nearly 25% of revenue for Indian companies.

India's top software exporters have recorded some of their worst performances in the past few quarters, amid a slowdown in investments in developed western markets. A major setback was last year when Britain voted in June to exit the European Union, stirring an uncertain global macro-economic climate that forced corporations to claw back investments. The industry was hit by a double whammy later in the year when the U.S. voted to power Donald Trump, known for his hawkish stance on immigration, as its new president.   

Nomura said increasing possibility of the new U.S. administration putting curbs on immigration could put Accenture in an advantageous position in the outsourcing business versus its Indian counterparts that are heavily dependent on high-skilled H-1B visas.

Industry group National Association of Software and Services Companies, or Nasscom, had in November lowered its dollar revenue growth outlook for this fiscal year to 8% to 10% from 10% to 12%, citing the weak demand. Last month, Nasscom also postponed setting the outlook for the next fiscal year to May.  

Earlier this month, outsourcing consulting firm Everest Group predicted that revenue growth for the top five Indian outsourcing companies would slow to 6.3% this year from 8.7% in 2016.

Added to their woes, the rupee has risen 3.6% against the U.S. dollar so far this year. According to Jefferies, every 1% change in the rupee against the U.S. dollar, implies a 2% to 3% impact on the fiscal year 2018 earnings of Indian software exporters.  

Shares of TCS closed 1.31% lower and Infosys lost 0.85% on Friday. Wipro gained 0.58% in Mumbai trading. The benchmark S&P BSE Sensex added 0.30%.

--Dhanya Ann Thoppil

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