HCL Tech shares surge to record high after strong guidance in mid-quarter update

Shares of HCL Tech today surged as much as 7.5% to a record high of ₹776.55 after the IT major raised its outlook for the September quarter in a mid-quarter update. HCL Tech today said it expects "the revenue and the operating margin for the current quarter (September 2020) to be meaningfully better than the top end of the guidance we had provided in July 2020."

In its earlier guidance given in July, HCL Tech had said that it expects revenue to increase quarter-on-quarter by an average of 1.5% to 2.5% in constant currency for the next three quarters. For operating margin, it had given a range of 19.5% and 20.5% for FY21.

In its mid-quarter update, HCL Tech today said: "We have seen strong execution during the quarter to date, and continue to execute to the plan this month. The revenue growth for the current quarter is expected to exceed 3.5% quarter on quarter in constant currency, enabled by broad based momentum across all service lines, verticals and geographies."

HCL Tech said that its operating margin for the current quarter is expected to be between 20.5% and 21.0%. "Good booking momentum continues this quarter, led by life sciences & healthcare, telecom & media and financial services verticals," HCL Tech said, adding that the pipeline continues to look healthy across service lines, verticals and geographies.

In a recent report HDFC Securities said: "We believe that the IT sector is poised for higher multiples, led by the longevity of the high-growth period with ‘multi-year’ growth tailwind from the economic crisis. We reckon that the sector (including mid-tier) can command multiples higher than historical averages, supported by the sector’s resilience and growth longevity." HCL Tech was among it top picks.

HCL Tech's outlook also boosted other IT stocks. TCS, Infosys and Tech Mahindra were up between 2% and 3% as compared to 0.7% gain in Sensex.