HCL Technologies Ltd in FY26 topped tier 1 peers in terms of organic growth for the third consecutive year. But HDFC Institutional Equities said the growth leadership is fading, as the brokerage believes the FY27 guidance of 1-4 per cent constant currency (CC) signals limited conviction at the top end, with the lower end assumes continued soft discretionary spending and the two troubled clients ramping down beyond plan. 

HCL Tech historically traded at a discount to Tier-1 peers. The current premium, earned through three years of relative outperformance, is unsustainable as growth converges, HDFC Institutional Equities said noting that the FY27 guidance now sits within the peer pack rather than above it. 

Also, voluntary deal walk-aways and the two-client overhang creates downside risk to even the midpoint, it said.

"We value HCL Tech at 15 times FY28E EPS, deriving a target of Rs 1,160, and downgrade the stock to 'ADD' from 'Buy'," HDFC Institutional Equities said. The brokerage had a target of Rs 1,465 on the stock earlier.  

HDFC Institutional Equities said based on the Q4 weak exit and the continued weakness in Q1FY27, it believes HCL Tech will deliver at the midpoint of the guidance. The June quarter will be weak due to seasonality, full quarter impact from telecom clients spending cuts, and continued weak macro. 

"Despite recovery in Q2/Q3, reaching the top end of the guidance requires a discretionary revival and large deal closures in H1, which considering the current macros appears difficult. The net new TCV of $9.3bn (flat
YoY) provides adequate conversion visibility but no upside thrust," HDFC Institutional Equities said. 

The brokerage has cut its estimates for FY27 and FY28 by 4-5 per cent and downgraded the stock to 'ADD' from 'Buy'. 

HCL Tech's growth premium over peers — the basis of its re-rating — is diminishing, HDFC Institutional Equities said as it cut its target multiple to 15 times against 18 times earlier.

Meanwhile, the IT firm management has indicated that the benefit of currency depreciation will be deployed into sales and GenAI capability investments rather than flowing to margins. HDFC Institutional Equities said HCL's Capital return remains best-in-class, witj the capital allocation policy for another five years at a minimum 75 per cent payout, free cash flow to PAT conversion at 107 per cent, ROIC at 40.3 per cent and and net cash of $3.5 billion.