HCLTech, India’s third-largest software services provider, experienced a significant stock decline of nearly 10% on Tuesday, marking its worst trading session since September 2015. This drop followed the company’s announcement of disappointing quarterly revenue figures and a conservative adjustment to its full-year sales outlook. The company only raised the lower end of its guidance, further fueling investor concerns.
This performance contrasted sharply with the broader market trend, as the Nifty 50 index, a benchmark for Indian equities, saw a 0.5% gain, recovering slightly from a previous session decline. HCLTech’s underperformance positioned it as the top loser on the Nifty 50 for the day.
Following the release of the financial results, at least eleven brokerage firms downgraded their ratings on HCLTech stock. The consensus revenue estimate among analysts was 300.68 billion rupees, but HCLTech reported consolidated revenue of only 298.9 billion rupees ($3.45 billion), a 5.1% increase year-over-year. This shortfall was primarily attributed to weakness in the company’s core software business. Adding to the negative sentiment, four brokerages also reduced their price targets for HCLTech shares.
Despite the disappointing results, HCLTech CEO C Vijayakumar expressed optimism about an improving demand environment projected for 2025. This outlook aligns with recent comments from Tata Consultancy Services, a larger competitor in the Indian IT services industry. HCLTech also revised its revenue growth forecast for fiscal year 2025, increasing the range to 4.5%-5% from the previous 3.5%-5%, citing acquisitions as a contributing factor to the upward revision.
However, Goldman Sachs noted that the midpoint of HCLTech’s revised revenue guidance still fell slightly short of expectations. The investment bank attributed this to the weaker performance in the software segment and a more gradual ramp-up of certain discretionary deals. Analysts at Mirae Asset Sharekhan echoed these concerns, highlighting the lack of an increase to the top end of the revenue guidance as a factor contributing to the negative market reaction.
Prior to this downturn, HCLTech had outperformed its industry peers in 2024, boasting a 31% increase in share price compared to a 22% rise in the Nifty IT index. In comparison, rivals Tata Consultancy Services and Infosys recorded gains of 8.5% and 22.5%, respectively, during the same period. On Tuesday, however, both TCS and Infosys experienced minor declines, with their shares down 0.31% and 0.61%, respectively.
In conclusion, HCLTech’s failure to meet revenue expectations and its conservative revenue guidance adjustment led to a significant stock price decline. While the company’s leadership maintains a positive long-term outlook, the current market sentiment reflects concerns about near-term performance in the face of a challenging industry landscape. The contrast between HCLTech’s recent outperformance and its current struggles underscores the volatility of the IT services sector and the importance of consistent financial delivery.
