As IT major HCL Technologies saw its counter zoom 22 percent in three months, Kotak Institutional Equities downgraded the information technology player to 'reduce' from 'add'.
HCL Tech’s stock is up 5 percent, 22 percent and 35 percent in the past one, three and 12 months,
respectively. The company now trades at only a 9 percent and 4 percent discount to TCS and
Infosys, significantly lower than the last five-year average. The stock trades at full valuations of 26X FY2026E earnings.
At 1 pm, HCL Technologies shares were quoting Rs 1,737.65 on the NSE, lower by 1.1 percent compared to the previous session's closing price.
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"We believe that HCLTech can deliver consistent industry-matching or industry-leading growth, led by a balanced portfolio of services and strength in cost takeout deals. However, the stock trades at full valuations at 26X FY2026E earnings," said the brokerage.
However, there are headwinds as well—these include the anniversary of the Verizon deal and modest deal wins over the past few quarters, leading to lesser than ideal visibility for growth in FY2026E, added Kotak.
The deal win total contract value has been moderate in the past few quarters after the Verizon deal. The visibility of mega deal-driven revenue is weak for FY2026E currently and requires wins in 2HFY25 (assuming no wins in 2QFY25). As a result, HCL Tech will benefit from a recovery in industry growth in FY2026E. However, the magnitude of growth will be a tad lower than peers such as Infosys.
"The portfolio mix may limit the extent of recovery relative to peers due to lesser exposure to BFS, especially in the US, where growth recovery is stronger, higher exposure to retail, CPG and manufacturing, where there are incremental headwinds and an underperforming ERD
portfolio, which faces downside risks," said Kotak.
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