Morgan Stanley (NYSE:MS) adjusted its stance on HCL Technologies (HCLT:IN), shifting the rating from Overweight to Equalweight, while increasing the price target to INR1,840.00 from INR1,705.00. The adjustment reflects the analyst's view that HCL Technologies, despite its strong performance in the Services business and growth from fiscal years 2022 to 2024, is facing a softer order book growth compared to its peers.
The firm noted HCL Technologies' solid execution of its order book, which has contributed to its growth in recent years. However, larger cap peers, such as Infosys (NS:INFY), are now anticipated to have a more favorable revenue growth outlook for the fiscal year 2025. This outlook includes the possibility of revenue guidance upgrades that seem less likely for HCL Technologies.
The analyst also pointed out the potential for margin improvement at HCL Technologies, suggesting that there is room for upside. Nonetheless, near-term catalysts that could drive the stock price further appear to be limited at this point. The company's stock has performed well over the past few years, closing the valuation gap with Infosys.
For HCL Technologies to achieve a further re-rating, it would need to either continue outperforming in revenue growth or see a convergence in margins. According to Morgan Stanley, neither scenario is present in their base case projections. This assessment has led to the conclusion that the risk-reward profile for HCL Technologies is now balanced, prompting the move to an Equalweight rating.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.