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Investing.com - JPMorgan has downgraded HCL Technologies (NSE:HCLT:IN) from Overweight to Neutral, while lowering its price target to INR1,700.00 from INR1,800.00.
The rating change follows what JPMorgan described as a "solid" performance from HCL Technologies that exceeded the firm’s recently lowered expectations, which had been set even lower after TCS’s weak results.
Despite softer headline signings than in previous periods, JPMorgan believes HCL Technologies has sufficient visibility to achieve its guidance, which implies an achievable 0.7-2% compound quarterly growth rate over the first through fourth quarters of fiscal year 2026.
The downgrade reflects JPMorgan’s concern that HCL’s growth is "coming at the cost of meaningful margin erosion from AI deflation," as clients across industries expect lower costs, which is reducing structural margins for new contracts and deals.
While the most recent quarter was affected by one-off issues including a client bankruptcy (20 basis points impact), a contract-specific ramp-up issue (40 basis points), and location/skills mismatches, JPMorgan points to a persistent 100 basis point drop in margins for the rest of the year as evidence of deeper structural challenges related to GenAI discounts and investments without visible returns.
In other recent news, HCL Technologies has been upgraded by JPMorgan from a Neutral to an Overweight rating. This change comes after the company reported fourth-quarter results that met expectations and provided a stable forward-looking guide despite the challenging macroeconomic environment. Analyst Ankur Rudra from JPMorgan highlighted HCL Technologies’ strong deal signings, which offer visibility into its future performance and support an organic growth outlook of 1-4% in constant currency for fiscal year 2026. Unlike its peers, HCL Technologies has not faced project rampdowns or cancellations, demonstrating consistent performance over the past three years. The company’s conservative guidance aims to account for potential declines in demand, with its portfolio focusing on non-discretionary services that can withstand market uncertainties. The stock’s valuation is considered attractive by JPMorgan, featuring a 4% dividend yield and a 6% free cash flow yield. Despite a slight 2% reduction in earnings per share due to margins, HCL Technologies is seen as a leader in scale growth for fiscal year 2026. These developments reflect JPMorgan’s confidence in the company’s growth trajectory and resilience in the current economic landscape.
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