Shares of HCL Technologies declined nearly 3% in early trade on Monday, January 5, as investor sentiment weakened following cautious commentary from global brokerages Citi and CLSA ahead of the Q3 FY26 earnings season for Indian IT companies.
Citi said it remains cautious on the Indian IT services sector despite continued global economic strength, noting that revenue growth has remained sluggish. According to the brokerage, constant currency services revenue growth for the sector in Q3 FY26 is expected to be in the range of 0.1% to 0.8% quarter-on-quarter, highlighting a slow and uneven recovery. Citi added that while some pickup in IT spending is expected beyond artificial intelligence-related deals, the pace of recovery remains a key monitorable. It also warned that margin trajectories need close tracking, as the benefit from a supportive USD/INR in the second half of 2025 could face pressure going forward. Citi continues to remain cautious on HCL Technologies, Infosys, Mphasis and Hexaware, maintaining a neutral stance on these stocks.
CLSA, in a separate note, advised investors to reduce exposure to Indian IT stocks after the recent rally in the sector. The brokerage pointed out that the Nifty IT index has risen about 14% quarter-to-date, significantly outperforming the broader Nifty’s 4% gain, pushing valuations closer to fair levels. Ahead of what it expects to be largely soft Q3 FY26 results, CLSA downgraded HCL Technologies from “outperform” to “hold,” citing valuation concerns. The brokerage noted that HCL Technologies is currently trading at around a 5% valuation premium compared with peers such as TCS and Infosys.
CLSA also highlighted that revenue growth momentum across the sector has not been strong enough to justify recent price gains, leading it to turn more selective. While it prefers Persistent Systems and Coforge among mid-cap IT stocks, it sees Infosys and Tech Mahindra as relatively better-positioned among large caps.
The combined cautious stance from brokerages weighed on HCL Technologies shares, contributing to the nearly 3% decline during the session as investors reassessed near-term growth visibility and valuations ahead of the earnings season.
