Accenture, Oracle nos signal good times for local

All market cues point to just one trend — a robust growth phase for Indian information technology (IT) sector.

Indeed, the recent performance of global biggies such as Accenture, Oracle and SAP signals a surge in the revenues of the domestic tech companies this quarter and in the next fiscal.

This view got a further boost on Friday on announcement of Accenture’s second-quarter (ended February 28) result. The tech MNC has reported a strong 20% year-on-year growth in its consulting revenues and raised its guidance for the full year to 11-14% from 8-11% in the last quarter.

This, analysts say, indicates the performance of local IT services firms will be better, too.

“Overall, we believe that Accenture results continue to indicate good tech spending environment,” Religare analysts Rumit Dugar and Udit Garg noted in a report brought out on Friday. “From a sector perspective, Indian IT services offer the fastest growth trajectories with the significant growth of these models powered by relatively low penetration of global services delivery.”

Similarly, analysts see the Indian IT services sector gaining significantly from the rising consulting and licence revenues of overseas tech firms like Accenture, Oracle, SAP and others.

Lately, application, database and middleware licence sales of Oracle have seen a huge upswing. The enterprise software company’s application licence sales in the second quarter climbed 34% yoy while its database and middleware sales was up 27% during the same period.

“Improving licence sale by software providers, such as SAP and Oracle is a positive leading indicator for Indian IT companies,” Yogesh Aggarwal and Vivek Gedda of HSBC Securities and Capital Markets said in the report.

The duo feels increasing polarisation of the software market due to aggressive M&A by companies such as Oracle had also resulted in significant increase in the addressable market of top-tier Indian IT companies.

Analysts Julio C Quinteros Jr, Balaji V Prasad, Vincent Lin and S K Prasad Borra of Goldman Sachs said the emerging scenario was best suited for the local tech companies. 

“We expect new technology spending initiatives, driven by both cyclical and secular factors, to drive sustained growth in IT spending in 2011. On a global basis we are most bullish on select consulting and offshore models that are most directly exposed to consulting names exposed to intact enterprise spending as new tech efforts take hold,” said the Goldman Sachs analysts.

According to them the multiple waves of investments in enterprise cloud building, offshore delivery, interactive and digital technologies driven by consumers, and connected device would result in high demand for IT services.  

Goldman Sachs analysts expressed confidence in the large-cap Indian IT firms.

“We expect 25% revenue growth next fiscal for large-caps, with incremental revenues of $11.5 billion over the next two years based on a better recovery in the US in 2011 and 2012, global tech spending forecast of 6% for 2011, ongoing investment in BFSI and retail verticals and dollar rise,” they wrote.