Robust Q3 in store for Indian IT firms

- Accenture raised revenue outlook for FY22 to 19-22% in local currency, from 12-15%

- Robust tech upcycle would continue for 5 yrs, forecasts Edelweiss

- Clients quicker in decision making, observes L&T Technology

- IT firms get a price increase in their contract renewal

Bengaluru: Indian IT services companies are likely to see a strong demand environment with robust deal pipeline for the next financial year despite fears of omicron spread across the world. The spread of the new variant has led to complete lockdown in Netherlands, while many European countries have also brought in restrictions on outdoor activities.

However, first quarter results of Accenture (that follows September-August financial year cycle) indicates that the demand environment is likely to stay robust for Indian IT firms (April-March financial year cycle).

Accenture has raised its revenue outlook for FY22 to 19-22 per cent in local currency, up from 12-15 per cent earlier. The company's management said the current demand environment will sustain for many years as just 30 per cent of firms have completed their cloud migration journey.

"Accenture's blockbuster performance and solid commentary support our thesis of a robust tech upcycle that would continue for four-five years," brokerage firm Edelweiss said in a report.

Accenture's management had also said that price hike is being seen across outsourcing contracts, which will support the margin profile. The commentary of Accenture augurs well for Indian IT services companies which compete with their global counterparts in the same space.

Recently, management of L&T Technology Services (LTTS) has said that demand environment remained robust with no delay in decision making by clients.

"The demand environment remains good. We are able to get a price increase. That's an ongoing process," said Amit Chadha, CEO &MD of L&T Technology Services.

Meanwhile, the fall in attrition seen in case of Accenture gives an early indication of easing in attrition rates. For the first quarter, Accenture's attrition fell by 200 basis points to 17 per cent on sequential basis as compared to 19 per cent in the previous quarter.

Indian IT services companies are reeling under high attrition for the last three quarters. For the quarter ended September, many IT firms have witnessed more than 20 per cent attrition rate.

Infosys saw its attrition rising by 620 basis points over the first quarter to 20.1 per cent. Similarly, Wipro's attrition rate reached 20.5 per cent in Q2 of FY22, up from 15.5 per cent in Q1. For HCL Technologies, attrition rate touched an all-time high rate of 15.7 per cent, up from 11.8 per cent reported in the first quarter.

However, the fall in the Naukri JobSpeak index- one of the benchmarks that gauges the hiring activity for different sectors- in hiring activity for October and November, 2021 in the Indian IT sector and Accenture results indicate that the worst may be over for the domestic IT industry.

Analysts are of the opinion that robust demand environment and fall in attrition are likely to support revenue growth of Indian IT firms in the third quarter. Therefore, disruption due to omicron may be temporary with minimal impact on the growth figures of these technology companies.