While releasing its Q4 results on Tuesday, HCL Tech gave FY27 revenue growth guidance of 1-4% year-on-year in constant currency terms. Not only did the company miss its own FY26 guidance of 4.0–4.5% growth by clocking just 3.9%, but its forward outlook for services growth of 1.5–4.5% came in well below the 4.8% YoY CC growth the services segment had just delivered in FY26.
The company’s Q4 revenue of $3.7 billion declined 3.3% quarter-on-quarter in constant currency, below street estimates.
Management attributed the weakness to a confluence of factors: sharp discretionary IT budget cuts by two large US telecom clients, cancellation of two SAP programmes, client-specific headwinds in retail and manufacturing verticals expected to create a ~50 basis point drag on services growth in FY27, a worsening European outlook due to geopolitical uncertainty, and a 200–300 basis point deflationary impact from AI on traditional IT services.
Also Read | HCL Tech shares tank over 9% after weak Q4. JPMorgan, HSBC & 3 others cut target price
Jefferies fires the harshest shot
Jefferies moved most aggressively, downgrading the stock to Underperform with a price target of Rs 1,165, one of the lowest on the Street.
“We expect HCLT’s organic revenue growth in FY27 to be 2.4% — the lowest since FY23,” the brokerage said, cutting its target price-to-earnings multiple from 18x to 16x. “Weaker growth expectations will lead to PE derating, especially when HCLT is trading at a 16% premium to TCS — despite a similar growth outlook.” Jefferies cut its FY27–28 EPS estimates by 1–2% and now expects an 8% recurring EPS CAGR over FY26–29.The downgrade wave is broad-based, with virtually every major brokerage either cutting its target or lowering its rating:
Citi maintained Neutral but cut its target price to Rs 1,385, calling it “a weak 4Q — revenues, deal TCV, growth outlook — all below expectations.” The brokerage flagged deteriorating forward indicators: TTM deal TCV up just 1% YoY, headcount growth of 1.7% YoY, and management’s commentary on reduced discretionary spend in telecom and the discontinuation of two SAP programmes. Citi trimmed FY27–28 EPS estimates by 1–2%, warning that “weak guidance will weigh on stock in near term.”
JPMorgan held its Neutral rating but cut its target to Rs 1,370 from Rs 1,419, noting that overall revenue came in 2% below consensus, with services 130 basis points below its own estimate. It flagged an additional concern: “HCLT also intends to reinvest FX gains into sales and GenAI capabilities, which now throttle any margin expansion expectations for FY27.” The impact of telecom softness and SAP cancellations, JPMorgan said, is likely to persist.
HSBC kept its Hold rating but trimmed its target to Rs 1,480 from Rs 1,560, describing the quarter as “a surprisingly sharp miss.” The brokerage delivered a sobering verdict: “Earnings growth and stock returns are unlikely to compound in double-digits.”
Nomura cut its FY27–28 EPS forecasts by 5–7% and lowered its target price to Rs 1,600 from Rs 1,700, maintaining its valuation at 20x FY28 EPS.
No HCL bulls left?
However, CLSA retained its outperform rating with a target of Rs 1,519, though it acknowledged the quarter was “disappointing” across revenue, EBIT margins, order book, and FY27 guidance, and flagged “limited visibility regarding offsetting the potential AI deflation to revenues through incremental volumes.”
Motilal Oswal stands out as the most constructive voice, reiterating a Buy with a revised target of Rs 1,650 based on 20x FY28 EPS. The brokerage now expects HCL Tech to deliver a USD revenue CAGR of ~4% over FY25–28 with a 17.9% EBIT margin, trimming its FY27 and FY28 estimates by 2.5% and 4.2% respectively. It acknowledged the “relative growth premium vs. large-cap peers narrows in the near term” but argued the company’s “diversified, infra-heavy portfolio remains a structural positive.”
The convergence of client-specific shocks, sector-wide telecom weakness, European macro headwinds, and the emerging structural threat of AI-driven deflation on traditional IT services has fundamentally reset expectations for one of India’s most-owned IT stocks. With the stock still trading at a premium to TCS despite a comparable, and now deteriorating, growth outlook, the valuation debate is far from over.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)