HCLTech witnessed a sharp decline of almost 10% in early trading on Wednesday following disappointing performance in the March quarter and a cautious outlook for the new financial year. This led to a negative investor reaction, with the stock dropping by 9.64% to Rs 1,302.60 in morning trade. The broader IT sector was also affected, with other tech stocks like Infosys, Tata Consultancy Services, and Tech Mahindra experiencing declines.
The primary reason for the sell-off was the subdued guidance provided by HCLTech rather than the actual quarterly results. The company projected a 1%-4% revenue growth for FY27 in constant currency, falling short of market expectations of 3%-5%. Management highlighted soft discretionary spending, delayed client decisions, and anticipated slowdowns from two specific clients as factors impacting growth, raising concerns about the IT sector’s demand recovery timeline.
In the March quarter, HCLTech reported a 4.2% increase in consolidated net profit to Rs 4,488 crore compared to the previous year, with revenue rising by 12.3% to Rs 33,981 crore. However, both profit and revenue figures fell below analyst forecasts. The new deal bookings of $1.94 billion were also perceived as weaker than anticipated, contributing to worries about short-term momentum.
Following the results, several brokerages turned cautious, with Jefferies downgrading HCLTech to ‘Underperform’ and lowering its target price due to limited growth visibility and disappointing guidance. Analysts suggested that if demand remains sluggish, earnings expectations for FY27 might need downward revisions. While the company’s long-term prospects remain positive, near-term sentiment could remain strained until growth picks up.
The market reaction also reflects broader apprehension about the IT sector, particularly regarding client spending trends in the US and Europe. Investors will closely monitor HCLTech’s management commentary in the upcoming quarters, deal wins, and improvements in client spending in core markets as key indicators for stock movement. If growth prospects improve, the stock could stabilize; however, persistent delays in decision-making and weak discretionary demand could prolong pressure.
Currently, the subdued guidance appears to have a more significant impact on sentiment compared to the earnings miss in the March quarter.