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Accenture's slowing growth damps outlook for Indian software exporters

Indian outsourcing firms still depend on traditional technologies

Indian IT services companies face pressure from higher squeeze on traditional outsourcing.   © Reuters

MUMBAI (NewsRise) -- Global outsourcing giant Accenture's slowing pace of revenue growth and digital-driven expansion signal a dismal outlook for the Indian software industry that is still riding on the prospects of traditional technologies and large deal wins.

On Thursday, Accenture forecast a 5% to 8% growth in revenue in constant currency for the fiscal year that began in July. It also reported a 6.7% increase in order bookings in the previous year and a 10% rise in fourth-quarter profit. The revenue guidance fell short of the pace in the previous year when it grew 8.5%, as a slowdown in the financial services business clouds the outlook.

"While we see the broad growth commentary from Accenture as positive, overall growth for the company has been on a downward trajectory, which might lead to concerns on growth slowdown in the (Indian) industry," brokerage Haitong said in a report on Friday. The "extremely robust" deal addition in Accenture's outsourcing business, however, indicates availability of large deals in key markets, it added.

The uncertain outlook spooked investors. Shares of top Indian software exporters fell, with the S&P BSE IT index closing down 0.5%. Tata Consultancy Services lost 1.5%, Infosys remained unchanged and Wipro fell 0.3% in Mumbai trading. The benchmark S&P BSE Sensex closed down 0.4%.

Accenture's growth forecast comes at a time when India's software exports industry is bullish about the business confidence in the U.S., the largest outsourcing market in the world. Over the past few months, large Indian IT companies such as TCS struck partnerships with top U.S. auto companies. Smaller rival Tech Mahindra won its largest ever outsourcing project worth $1 billion from AT&T.

Still, a contraction in Accenture's Europe business and weak growth in the financial services business underscores the challenges facing the Indian industry.

"IT spending will moderate in financial services in 2019 after a strong year in 2018," said Kotak Institutional Equities. Indian IT services companies face pressure from higher squeeze on traditional outsourcing, while spending in new areas remains steady, Kotak said.

Accenture earns 65% of its revenue from new technologies such as cloud computing and artificial intelligence, while for the Indian companies it barely adds up 30% to 35%.

The outsourcing service provider had also forecast global spending on technology to grow 3% to 4% this fiscal year, similar to last year, a feat, which many analysts believe may be difficult to achieve.

"This would imply macroeconomic conditions in 2020 to replicate those in 2019 -- which on the basis of current trends looks a tall order," brokerage Nirmal Bang said Friday.

An escalating trade war between the U.S. and China and Britain's likely exit from the European Union without a deal have triggered fears of the global economy slipping into the slow growth lane.

Accenture, whose revenue is twice that of India's largest outsourcer TCS, has managed to perform well on the back of its "unique strengths," Nirmal Bang said. The company is cashing in on its disproportionately high exposure to new digital technologies by significantly investing ahead of the curve, amid higher corporate IT spending in such technologies. For India's IT companies such investments still remain few and far between.

-- Dhanya Ann Thoppil

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