Analyst Call Tracker: TCS, HCLTech most upgraded IT stocks; brokerages optimistic on long-term recovery
HCLTech, despite a revenue decline and margin drop, remains hopeful for a Q2FY25 rebound, with expectations of sequential growth across most verticals, except financial services.
Tata Consultancy Services (TCS) and HCL Technologies were the most upgraded IT stocks in July, making it to the list of top 10 Nifty stocks with maximum analyst upgrades over the last one quarter. Despite a challenging macroeconomic environment, brokerages remained optimistic about the two tech giants, especially in the long term, citing strong deal flows and recovery in BFSI and manufacturing verticals.
Out of 43 brokerages covering HCLTech, 21 had a ‘Buy’ rating, while 22 had a ‘Hold’ or ‘Sell’ rating. For TCS, 29 out of 47 brokerages recommended a ‘Buy’ call.
HCLTech’s Q1 financial performance diverged from TCS’s strong results.
HCLTech’s revenue fell 1.6 percent sequentially to Rs 28,057 crore. TCS saw notable growth, with revenue rising 2.2 percent quarter-on-quarter to Rs 62,613 crore, driven by robust performance in manufacturing and expansion in the UK.
Following TCS’s impressive Q1 performance, Jefferies, Nomura, and Nuvama raised their ratings and target prices, reflecting renewed confidence in the company. As for HCLTech, June quarter earnings prompted several brokerages like Nomura, Kotak Institutional Equities, and Citi Research to raise their target prices on the stock.
Positive outlook for FY25, led by broad based recovery in most verticals
TCS’s EBIT margin of 24.7 percent, though down from the previous quarter, exceeded estimates. The company’s focus on high-ROI cost optimisation projects and strong BFSI (Banking, Financial Services, and Insurance) sector performance contributed to its positive outlook for FY25. The management expressed optimism for the company in the long term, with expectations of broad-based growth across verticals and geographies. However, despite the impressive results, TCS remains cautious about near-term demand due to adverse global macroeconomic conditions.
HCLTech, despite a revenue decline and margin drop, remains hopeful for a Q2FY25 rebound, with expectations of sequential growth across most verticals, except financial services. The company maintained an organic revenue growth guidance of 3-5 percent in constant currency for FY25, with EBIT margin of 18-19 percent. HCLTech’s new initiatives, such as its Gen AI platforms, are expected to capitalise on emerging demand and support future growth. The company’s in-line operating performance and healthy deal intake were also cheered by analysts.
Brokerages said that HCLTech’s Q1FY25 performance was stable and in line with expectations, adding that continued deal wins and efficient execution were necessary to drive future growth. Nuvama, in a post-earnings report, said, “It (HCLTech) is currently trading at a 5 percent discount to Infosys – versus historical discount of 15-20 percent – justified, to a large extent, by its higher growth in FY24 as well as higher growth expectations in FY25.”
At 9.20 AM, HCLTech shares traded nearly 2 percent higher at Rs 1,587, while TCS shares were up 1.8 percent at Rs 4,245. Despite a 12 percent gain in July, both stocks declined over 3 percent in August, mirroring the broader trend of the Nifty 50’s downturn this month.
Bymoneycontrol
