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HCL Technologies shares plummeted more than 10% on Wednesday after a weak earnings report for the March quarter (Q4FY26) and full year FY26 led to analyst downgrades. The company’s modest revenue guidance for FY27 has raised questions about whether its stock deserves to trade at a valuation that’s in line with or higher than those of rivals such as TCS and Infosys.
HCL has forecast revenue growth of 1-4% in constant currency terms, down from its previous year's initial guidance of 2–5%. This outlook is primarily driven by an expected 1.5-4.5% growth in services.
Client-specific headwinds in telecom, manufacturing and retail could shave about 50 basis points (bps) off growth, it cautioned. The guidance, which does not include two acquisitions (Telecom solutions group HPE and Jaspersoft) due to delayed US government approval, is weaker than expected, and narrows its growth differential versus competitors. This should eventually reflect on valuations.
After Wednesday's correction, HCL trades around 17.8 times estimated FY27 earnings based on a Bloomberg consensus, versus 16.2 times for TCS and 17.9 times for Infosys. “HCL’s premium multiple is premised on the fact that it can grow faster than other large caps. At the midpoint (of the guidance), that growth premium disappears. We now expect around 3% services growth (organic). Importantly, the full impact of the client-specific issues is yet to play out, and we expect H1 to be soft,” said Motilal Oswal Financial Services.
HCL’s constant-currency revenue fell 3.3% sequentially, missing the consensus estimate of a 1.6% decline. For the full year, the metric grew merely 3.9% versus 4.7% in FY25. In comparison, TCS saw sequential constant-currency revenue growth of 1.2% in Q4FY26. Infosys is yet to report its Q4FY26 earnings.
Deal wins were another red flag. Total contract value (TCV) for FY26 was flat versus last year at $9.3 billion. Ebit margin for FY26 slid to 17.2% from 18.3% last year. Excluding one-off impacts such as new labour codes and restructuring costs, margins would have been more respectable at 18.55%. But investors rarely reward ‘adjusted’ margins when growth visibility weakens simultaneously. Management attributed this partly to AI-driven deflation, noting that a typical $100 deal is now closer to $80 in value as productivity improves. The company also walked away from more than $1 billion of hyper-competitive ‘traditional’ deals to focus on future-ready segments.
HCL was among the first to report AI revenue separately, and has been betting heavily on emerging ‘AI-native’ opportunities such as AI Factory, and custom silicon engineering. HCL’s AI Factory is a strategically designed AI environment and set of services that enable enterprises to scale and industrialize AI initiatives.
These segments currently account for just 5% of the industry, but are growing about 30% annually, it said. HCL has already secured its second AI factory deal worth more than $100 million. Its annualized advanced AI revenue touched $620 million in FY26, already more than 4% of total revenue.
But the transition comes with near-term pain. Around 40% of traditional IT services face disruption from AI-driven productivity improvements. HCLTech estimates the impact on its portfolio at 2-3%, lower than the industry’s expected 3-5% decline. Another 55% of the industry is ‘AI amplified’, including segments such as cybersecurity and cloud, which can use AI to clock more than 10% annualized growth.
Meanwhile, geopolitical tensions in West Asia delayed deal closures in the software segment, historically a crucial quarter-end contributor. SAP program discontinuations and a shift from perpetual licensing to subscriptions also weighed on revenues. HCL is in the midst of a strategic transition. It is consciously stepping away from legacy growth drivers and repositioning itself for an AI-led future. Whether that bet pays off, and how quickly, will determine if it regains the growth premium. For now, investors appear unwilling to wait.
Ananya Roy is the Founder of Credibull Capital, a SEBI-registered investment adviser, where she focuses on building disciplined, research-driven investment strategies for long-term wealth creation. A CFA charterholder with an MBA in Finance from a premier IIM and an engineering degree from NIT, she combines strong academic grounding with nearly 15 years of hands-on experience across the investment management spectrum.Her career spans index construction, portfolio management, and private equity investing, giving her a 360-degree perspective on capital markets. Prior to founding Credibull Capital, she held key roles at Edelweiss, Reliance PMS, and Morningstar, where she was involved in fund management, equity research, and product development. This diverse exposure enables her to seamlessly connect macroeconomic trends with bottom-up stock selection.Ananya is known for her ability to simplify complex financial concepts and translate them into actionable insights for investors. She writes extensively on the economy, market trends, regulatory developments, and personal finance, with her work also featured in leading publications such as Moneycontrol, The Economic Times, and Financial Express.Deeply passionate about investing, she enjoys immersing herself in detailed industry analysis and company fundamentals, constantly seeking to uncover high-conviction opportunities. Her investment philosophy is rooted in patience, discipline, and a sharp focus on risk-adjusted returns.