Shares of Indian IT giant HCL Technologies slumped nearly 10% on Tuesday after the company’s December quarter earnings failed to meet market expectations. Despite reporting an increase in consolidated net profit and raising its revenue growth guidance, investor sentiment turned bearish, leading to significant erosion in the stock's market value.
On the Bombay Stock Exchange (BSE), the stock plummeted 9.41%, closing at ₹1,798.40. Similarly, on the National Stock Exchange (NSE), it dropped 9.63% to ₹1,797.75. HCL Tech emerged as the worst performer among the BSE Sensex and NSE Nifty firms during the trading session.
Market Valuation Erodes by ₹46,987 Crore
The sharp decline in share price led to a significant erosion of ₹46,987.11 crore in the company’s market valuation, reducing it to ₹4,91,743.25 crore during morning trade.
The muted response to HCL Tech’s earnings underscores market dissatisfaction despite the company posting a 5.54% year-on-year rise in consolidated net profit to ₹4,591 crore. This was higher than the ₹4,350 crore reported in the same period last year.
Analysts Cite Underwhelming Performance and Guidance
According to Motilal Oswal Research, "HCLT’s Q3 numbers and Q4 guidance were underwhelming," reflecting concerns over the company's near-term growth prospects. The company reported a sequential revenue growth of 3.8% in constant currency (cc) terms, which fell short of the market’s expectations of 4.8%.
Shaji Nair, Research Analyst at Mirae Asset Sharekhan, highlighted that while the company’s revenue growth was decent, it missed estimates. “HCL Tech reported decent revenue growth of 3.8% q-o-q in cc but missed our estimates of 4.8% q-o-q in cc with largely broad performance across geos and verticals,” Nair noted.
Adding to the concerns, other major IT stocks, including Tech Mahindra, Infosys, and Tata Consultancy Services (TCS), also witnessed declines during the day, reflecting broader challenges within the IT sector.
December Quarter Performance
HCL Tech’s revenue from operations for the December quarter stood at ₹29,890 crore, a 5.07% increase from ₹28,446 crore in the corresponding quarter of the previous fiscal. Sequentially, the company recorded an 8.4% rise in profit and a 3.56% increase in revenue.
The company’s Chief Executive Officer, C Vijayakumar, expressed optimism about the demand environment, stating, “We are witnessing green shoots of recovery in discretionary spending.” HCL Tech also revised the lower end of its revenue growth guidance for the fiscal year to 4.5-5%, up from the earlier range of 3.5-5%.
Despite this optimistic outlook, the market’s reaction suggests that investors were looking for more robust results and a stronger guidance revision.
Concerns Over Discretionary Spending
The IT sector has been grappling with subdued discretionary spending amid global economic uncertainties. While HCL Tech has expressed confidence in a gradual recovery, the market remains cautious. The company’s subdued Q3 performance has raised concerns about the sustainability of demand recovery in key markets such as the United States and Europe.
Motilal Oswal Research noted that HCL Tech’s growth across geographies and verticals was largely broad-based but lacked the momentum required to meet market expectations. This has led to a reassessment of the company’s valuation, with some analysts downgrading their target prices for the stock.
Industry-Wide Pressure
The disappointing performance of HCL Tech also weighed on other IT stocks, with Tech Mahindra, Infosys, and TCS trading lower during the session. The IT sector has been under pressure due to macroeconomic headwinds, including inflation, rising interest rates, and slower client spending in major markets.
Experts believe that these challenges are likely to persist in the near term, impacting revenue growth and profitability across the industry.
Market Reaction to Guidance Revision
HCL Tech’s decision to revise the lower end of its revenue growth guidance to 4.5-5% was seen as a modest improvement, but it failed to instil confidence among investors. The market was expecting a more aggressive upward revision, especially given the company’s sequential growth in profit and revenue.
The muted guidance reflects caution over the demand environment, particularly in discretionary IT spending, which has been a key growth driver for the industry.
What Lies Ahead for HCL Tech?
Despite the disappointing market reaction, analysts believe that HCL Tech’s strong client relationships and focus on digital transformation projects position it well for long-term growth. The company has also been investing in cloud, artificial intelligence (AI), and other emerging technologies, which are expected to drive future demand.
However, in the short term, the company will need to address investor concerns by demonstrating consistent growth across geographies and verticals. Additionally, a clearer outlook on discretionary spending trends will be crucial for regaining market confidence.
Conclusion
The nearly 10% plunge in HCL Tech’s share price on Tuesday reflects investor dissatisfaction with the company’s December quarter performance and guidance. While the company reported year-on-year growth in net profit and revenue, it failed to meet market expectations, leading to a sharp decline in its market valuation.
As the IT sector continues to face headwinds, HCL Tech will need to navigate these challenges by leveraging its strengths in digital transformation and emerging technologies. Investors will be closely watching the company’s Q4 performance and its ability to deliver on its revised guidance.
For now, the market’s reaction serves as a stark reminder of the high expectations placed on India’s IT giants and the need for consistent performance to sustain investor confidence.
With inputs from agencies
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