Why HCLTech shares dropped over 4% despite a robust Q1

Shares of HCL Technologies fell more than 4% on Tuesday, snapping a three-session winning streak, as investors booked profits after the recent rally and turned cautious over the company's unchanged FY27 guidance despite a better-than-expected June quarter performance.

The stock declined as much as 4.5% to an intraday low of ₹1,165 on the BSE, making it the biggest loser on the Sensex. The company's market capitalisation slipped to around ₹3.17 lakh crore.

In comparison, Tata Consultancy Services (TCS), India's most valuable IT company, was trading nearly 1% higher, while Infosys fell around 0.7%. The benchmark Sensex and Nifty were both down about 0.7% during the session.

What triggered the sell-off?

HCLTech delivered a stronger-than-expected performance for the April-June quarter, driven by steady growth in its financial services business, resilient deal execution and the benefit of a weaker rupee.

The IT major reported a consolidated net profit of ₹4,624 crore for the quarter ended June 30, up 3% sequentially from ₹4,488 crore and 20.3% year-on-year. Revenue increased 1.8% quarter-on-quarter to ₹34,579 crore, while EBIT rose 3.7% to ₹5,831 crore. EBIT margin expanded 39 basis points sequentially to 16.9%. The board also declared an interim dividend of ₹12 per equity share.

Despite the healthy earnings performance, the Street was disappointed that management retained its FY27 constant currency revenue growth guidance at 1-4% and EBIT margin guidance at 17.5-18.5%. The unchanged outlook indicated that the company continues to see a challenging demand environment, tempering expectations of a stronger recovery in the coming quarters.

Guidance disappoints Street; brokerages turn cautious

The company's conservative outlook prompted mixed reactions from analysts, with several brokerages downgrading the stock or maintaining cautious recommendations.

Citi adopted the most bearish stance, downgrading HCLTech to "Sell" from "Neutral" and cutting its target price to ₹1,040, citing limited upside amid a subdued growth outlook.

CLSA also downgraded the stock to "Hold" from "Outperform" with a target price of ₹1,202. While the brokerage acknowledged healthy deal wins and improving AI capabilities, it believes much of the optimism is already reflected in the current valuation.

Goldman Sachs maintained its "Neutral" rating with a target price of ₹1,180, noting that although sequential revenue decline was less severe than expected, it marked the second consecutive quarter of muted sequential growth.

Among domestic brokerages, ICICI Securities retained its "Reduce" rating with a target price of ₹1,060, saying the unchanged guidance reflects persistent macroeconomic headwinds, AI-led pricing pressure and the limited revenue contribution expected from the recently announced $1.14-billion mega deal during FY27.

Systematix Institutional Research also maintained a "Hold" rating with a target price of ₹1,180, pointing to client-specific challenges, rising competition for large outsourcing contracts and the potential impact of AI-driven pricing deflation on future growth.

On the other hand, some brokerages remain optimistic. Nomura reiterated its "Buy" rating and raised its target price to ₹1,290, citing record deal wins, rising AI revenues and confidence that restructuring initiatives will support a stronger recovery over the next few quarters.

HDFC Securities maintained its "Add" rating with a revised target price of ₹1,335, saying record quarterly order bookings and growing AI revenues suggest that new business wins are offsetting client-specific headwinds.

Motilal Oswal also reaffirmed its "Buy" recommendation while raising its target price to ₹1,450. The brokerage continues to prefer HCLTech among large-cap IT stocks, citing its diversified portfolio, robust deal pipeline and expanding AI capabilities.

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