Accenture, a global IT services provider, apparently omits wage raises and restricts promotions at senior levels in India and Sri Lanka. Accenture stated that it will not provide raises to its employees in India and Sri Lanka in 2023, except where it is legally mandated or committed to doing so in critical skill areas. This choice is made considering several factors, including the macroeconomic situation. Ajay Vij, country managing director, stated that the firm encountered a more challenging macro environment than expected at the start of the fiscal year FY23. They are deferring promotions to and within MD and appointments to SMD until June 2024 for the business to return to growth and make promotions more affordable.
Accenture’s revenue for the fiscal quarter ending August (Q4FY23), deal bookings, and revenue growth projections for FY24 indicate a long recovery road for India’s information technology (IT) sector.
Accenture has a fiscal year that runs from September to August. The success of global IT corporations is witnessed as a predictor of the profit prospects of Indian IT enterprises. According to Accenture’s most recent statistics, revenue visibility continues to be poor.
In constant currency terms, the Dublin-headquartered IT giant Accenture’s YOY revenue growth has contracted for the sixth consecutive quarter to 4%, the mid-point of its 2-6% recommendation. The change was driven by the managed services/outsourcing business, which competes with tier-1 Indian IT businesses, reflecting Accenture’s market share increases. The consulting business was not up to the mark, which may be a problem for Wipro Ltd, given its exposure to it.
Weak discretionary spending and delayed client decision-making in the face of macroeconomic uncertainty continue to impact demand for IT services. In this context, Accenture’s deal bookings declined 10% in the fourth quarter, led by the managed services division. According to management, clients are more cautious about shorter agreements, which are increasingly spreading to larger deals.
This is poor news for tier-2 Indian IT businesses, who rely more on short-cycle acquisitions, especially considering their high valuation multiples. Also, significant transaction ramp-ups may take longer, further dragging on the sector’s FY25 revenue growth trajectory, which can be one more negative.
Overall, management commentary pointed to a more difficult-than-expected macro situation in FY23. Accenture’s FY24 revenue growth projection of 2-5% was moderate in comparison to its 8% rise in FY23. While Accenture’s FY24 projection does not consider any improvement or deterioration in the macroeconomic and discretionary expenditure environment, it does anticipate a pickup in demand towards the end of the year.
In summary, investors hoping for a speedy rebound in Indian IT profitability would be disappointed. According to an Ambit Capital research dated September 29, Accenture’s FY24 organic growth projection (0-3%; lowest in a decade) corresponds with H2FY24/H1FY25, when the street expects the Indian IT comeback to play out.
Weak Q1FY24 (-2 to +2% year-on-year in constant currency) guidance presents H2 recovery wishes for Indian IT may be aggressive, according to the report. In such a case, the Nifty IT index, which has increased 11% so far in 2023 on the back of recovery predictions, may be due for a pullback.
Meanwhile, according to Emkay Global Financial Services, the recruiting index for IT software/services has fallen (year on year) in all nine months of this year, showing persistent softness in demand and uncertainty in the broader climate. The IT job index is presently down 49% from its high in July 2022.
In addition, the corporation is drastically lowering its promotions. The corporation stated it would award advancements up to the level of Associate Director (level 5), albeit at a lesser rate than in 2022. Accenture has thirteen levels, with thirteen being the lowest and one being the highest. Promotions at levels 1–4 have been postponed until June 2024.
However, there is a piece of good news from the fellow competitor, the Indian IT giant.
For the quarter that ended September 2023, India’s top software services exporter, TCS, announced that most of its employees will receive 100% variable pay. TCS’ Chief Human Resources Officer Milind Lakkad announced a 100% variable for 70% of its staff base in Q2FY24 at the company’s post-earnings conference call. He notified the remaining staff that their compensation would be variable and dependent on the performance of their business unit.
The IT giant increased its overall net profit by 8.7 per cent to 11,342 crore in the September quarter, up from 10,431 crore in the same time in 2022. The board authorised a 17,000 crore buyback at a price of Rs 4,150/equity share, representing a 15% premium.
Conclusion.
Some experts suggest that the fear that macroeconomic circumstances would deteriorate is causing some caution in every sector, which is why spending is being prioritised. While most of the medium-term tech spending remains similar, the caution is leading to project prioritisation, which is why it is more of a near-term headwind, with firms expecting a rebound in the second half of FY24. We hope that the Indian IT sector again catches up with the time and lead the way in the global platform.
