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Tech budgets may rise soon as the new year brings winds of change

Services based on new technologies account for over half of its revenue. For most of the Indian IT companies digital contributes between 20% and 25% of revenue.

, ET Bureau|
Updated: Jan 09, 2018, 02.01 PM IST
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Services based on new technologies account for over half of its revenue. For most of the Indian IT companies digital contributes between 20% and 25% of revenue.
BENGALURU: Clients are expected to marginally boost their IT budgets, even as they make digital the focus of their spending, but Accenture will benefit far more than Indian IT companies because of the steps it has taken to transform its business, experts say.

On its earnings conference call, Accenture CEO Pierre Nanterme agreed with an analyst report that budgets appeared to have increased. “Indeed there is an increase in the budget. But, as you know, the investments — I mean, they continue to shift from the legacy to the new [to use our own terminology]… it’s creating a strong demand for Accenture services because we organise our capabilities exactly to support the industrialisation of digital services,” Nanterme told analysts in the third week of December.

IT budgets have held steady for the last two years, so even a marginal increase will be a positive sign. “Some IT companies have been slightly more positive about demand. Cognizant has said that demand in the last few quarters is the best they have seen since the global financial crisis. I expect there will be a slight pick-up in budgets.” Girish Pai, analyst with brokerage Nirmal Bang, told ET.

Pai added that Accenture had invested heavily in digital, which was giving it a significant edge in terms of cornering the increased budgets.

“But it is not correct to compare the demand that Accenture has seen to the Indian IT companies. Just the Accenture Interactive business — which is largely digital marketing — is over $6 billion. So Accenture plays in a much larger market than Indian IT companies,” Pai said. Accenture has been forecasting strong growth helped by its early shift to digital offerings.

Services based on new technologies account for over half of its revenue. For most of the Indian IT companies digital contributes between 20% and 25% of revenue. IT experts say that the fact that Indian companies have not yet created a strong digital business will hurt them, even as budgets grow.

“This presents a mixed picture for the Indian firms; on the plus side they are seeing increasing IT budgets and opportunities to expand into the new digital service.

However, some, if not much, of these gains are being offset by the revenue compression they are experiencing as a result of digital transformation and IT modernisation and their poor positioning in the new digital market space,” Peter Bendor Samuel, CEO of IT advisory firm Everest Research, said. Indian IT companies will have to do a lot more if they expect to close the gap with the consulting firm.
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