Clients in wait and watch mode, will take a quarter to gauge impact of tariffs: Accenture
It will take about a quarter for clients, who have now hopped on to the fence, to understand the impact of tariffs brought in by the US administration, two top officials of Accenture Plc told
Mint
in an interview.
Pointing out that the current volatility may actually provide impetus for artificial intelligence (AI)-led transformation by companies, they added that companies are moving more than a quarter of their annual technology spends to AI-led solutions, especially generative AI or GenAI.
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Ryoji Sekido, chief executive officer (CEO) for Asia Oceania at Accenture, the global IT services market leader, said it's a bit early to have any speculative discussion, but uncertainty and volatility are definitely increasing. 'That's why clients are seeking more compelling business cases and very tangible solutions, whether we can deliver the outcome of whatever transformation they try to start or even based on even AI."
To be sure, the reciprocal tariffs were paused for 90 days on 9 April by US President Donald Trump. Sekido agrees that has given industry some time to prepare. 'At the same time, my point of view is this kind of volatility is going to be more of a tailwind to accelerate AI transformation by clients, because AI at the end of the day is seeking more efficiency, more agility and also more velocity for the client."
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'Maybe it will take about a quarter to really understand the implications and then there will be better clarity," said Saurabh Kumar Sahu, managing director and lead for the company's India business, adding that while clients are likely to wait and watch before opening their purse strings, technology spends will continue to remain relevant.
According to Sahu, clients are increasingly moving IT spends towards GenAI amid increasing interest in the benefits of the new technology. 'Very clearly, close to about 25-30% of technology spends today are gravitating towards AI and GenAI because companies are seeing that value in the allocation in terms of RoI (returns on investment)."
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Notably, Accenture has been leading deals in the GenAI space. Its new order bookings of $39.6 billion in the first two quarters of FY25 (September-February) had GenAI deals worth $2.6 billion. In the previous fiscal, it had bagged new GenAI deals worth $3 billion, making it an aggregate of $5.6 billion in GenAI deals in a year and a half. Meanwhile, Tata Consultancy Services (TCS) disclosed in its FY24 annual report that it had closed more than 130 deals, and 20 new customers went live in the fiscal with AI and GenAI use cases.
The growth alert from Accenture comes at a time when the IT services industry is grappling with slowing business in recent years and quarters. Mumbai-headquartered TCS, India's biggest IT services company, grew its January-March quarter revenue 1.4% y-o-y in dollar terms to $7.5 billion, while Bengaluru-headquartered Wipro Ltd's revenues in the same quarter fell 1.2% y-o-y to $2.6 billion.
However, India's second-biggest IT services company, Infosys Ltd, reported better numbers for Q4, growing its topline 4.8% in constant currency terms to $4.7 billion.
Meanwhile, Accenture, which follows a September-August financial year, grew its revenues 5% year-on-year (y-o-y) in its second quarter (December-February) to $16.7 billion in US dollar terms.
The company also revised its full-year revenue growth outlook for FY25 from 4-7% to 5-7%, and projected March-May (third) quarter revenue growth at 3-7%, even as Infosys estimated FY26 revenue growth at 0-3%, and Wipro estimated a 1.5-3.5% fall in revenue in its April-June quarter. TCS does not provide future revenue estimates.
Analysts see clear slowdown in growth for the industry over the next couple of years. 'While both earnings (less so) and PE multiple (more so) have corrected since 1 January 2025, we suspect that there are further cuts possible for both FY26 and FY27 earnings under the current macro conditions, which we believe could last longer than companies' sanguine commentary," brokerage BoB Capital Markets said in a note on 18 April after Infosys announced its results.
'We believe the industry's structural USD organic revenue growth from here on will be lower than the ~7% CAGR seen during FY15-FY20, possibly ~5% CAGR over FY25-FY30 in constant currency (CC) terms," the brokerage added. 'Indian Tier-1 companies now face higher competition from Accenture (especially as it loses business due to DOGE), tier-2 players, and Cognizant, likely slowing their growth compared to FY15-FY20."
Notably, Accenture and other consulting firms were at the receiving end of the US administration's cuts in federal spending. Despite its decent numbers, Accenture, too, is facing growth pangs.
In a 6 April report, Incred Equities pointed to the fact that new bookings in the first half (September-February) of FY25 for the company had slid 1% y-o-y, a first since H1FY15. To be sure, Accenture's new bookings for Q2 alone slid 3% y-o-y to $20.9 billion, reflecting the challenge in getting deals from clients that are tightening discretionary spends.
'While CY25F IT spending commentary remains unknown, industry discussions suggest the sense of urgency is less and that project starts could shift right," noted Abhishek Shindadkar, research analyst at Incred, in the report. 'As for the demand trend, most verticals appear to be in a wait-and-watch mode with industry-specific challenges appearing in manufacturing (especially automotive), hi-tech (especially hyperscalers) verticals, and healthcare (early noises)."
Both officials of Accenture were of the view that even as GenAI continues to automate tasks, engineers will remain relevant, although the nature of engineers in demand will change.
'Everything today is more software defined, not just on the enterprise side, but also machines, infrastructure, cars, everything," said Sekido. 'So, we're going to have a serious supply issue with engineering resources. That's why my view is GenAI will not reduce that (demand)."
'Coders as such will not go away at all," Sahu said. 'A different type of engineering is going to come into place. GenAI will need a lot of prompt engineers, which is the next version of coders... That's a lot of science, and that is where we are going to gravitate towards in terms of our skill sets and hiring."
Sahu remained non-committal on the company's hiring plans for Indian, saying hiring will be done according to market demand and also said GenAI will not impact the company's hiring.
'If the market demand for GenAI technologies increases, we will need to have more people who understand GenAI or AI technology better," Sahu said. 'It can be a combination of people who are there today, who will be reskilled, plus new people that we hire from the market. So I don't see any kind of a deviation from our hiring strategy because of GenAI."
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