After 12 quarters, FIIs make a comeback in this IT stock; what’s changed the mood?

was probably the only software company that gave a glimpse of the current state of environment in the key export markets as it trimmed down its earnings growth guidance for the current financial year twice in 2 months.

Despite such a harsh move, the stock seems to have found a soft corner among foreign institutional investors (FIIs). After reducing their holdings for 12 consecutive quarters, FIIs increased their exposure to the country’s third largest IT services company in the December quarter.

FII holdings in HCL Technologies increased by 112 basis points sequentially to 18.29% in the quarter ended December.

Among the top 5 IT firms, HCL Technologies is the company to have seen the highest increase in FII holding. Apart from

, FIIs have raised their holdings in LTIMindtree by 108 bps sequentially to 9.21%, and in by a marginal 9 bps to 36.3%.

From as high as 27.66% in the December quarter of 2019, FII holding in HCL Tech dropped to 17.17% in the September quarter of 2022 before it went up in the last quarter.

If one assesses the stock performance, HCL Tech has given stupendous returns in the last 3 years, outperforming industry bellwether by a wide margin.

Despite facing a sell-off from FIIs, shares of HCL Tech have given 88% returns in the last 3 years compared to the 55% returns by .

While announcing its September quarter earnings, HCL Tech had raised the constant currency revenue growth guidance to 13.5-14.5% for FY23. But 2 months later, it said that growth is likely to be at the lower end of this range.

It did not stop there, as the software major trimmed this range further to 13.5-14.0% while releasing the December quarter earnings.

The guidance hinted at a possible slowdown in decision making by clients and longer than usual delays in closure of deals.

While the cautious view on the industry remains, some analysts believe that it is not worse than anticipated.

“A recession view for the developed markets, which was a consensus a few months ago, still holds but with reduced intensity,” Kotak Institutional Equities said.

The brokerage believes in the case of a recessionary environment, IT stocks should bottom out at a higher multiple compared to recessions of the past.

For Kotak Equities and many other brokerages, HCL Technologies remains a preferred pick as the risk-reward remains favourable and there exists valuation comfort.

“Trading at 17.9x FY24E EPS with a 5% dividend yield, HCL Tech is a value pick, in our view,”

analyst Rakesh Kumar said in his report.

(Data input from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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