HCL Tech vs Tech Mahindra: Which IT stock should you pick now that US elections are over?

HCL Tech vs Tech Mahindra: IT stocks have been in focus since the US election results were announced. The Nifty IT index has gained more than 3 per cent since then, buoyed by expectations of increased spending by US clients and a strong dollar. Many companies in the US rely on Indian IT companies for outsourcing their software development. Therefore, a stronger US dollar can enhance the profitability of Indian companies, when converting their earnings back to rupees. This plays a significant role in boosting their stock prices.

With the conclusion of the US elections, expectations are ripe for increased IT spending in the country, which could benefit major Indian IT companies. The market dynamics post-election could shape the investment outlook for IT stocks. Amid this environment, here’s a detailed comparison to help investors make an informed choice between HCL Tech and Tech Mahindra.

Stock Price Trend

Tech Mahindra has outperformed HCL Tech in 2024. Tech Mahindra has climbed almost 36 per cent year-to-date, while HCL Tech has gained over 23 per cent during the same period. Both companies have delivered positive returns in seven of the eleven months this year.

Over the past year, both IT stocks delivered positive returns, with HCL Tech rising 41.5 per cent and Tech Mahindra around 42.5 per cent.

Boosted by strong market sentiment and investor confidence, HCL Tech reached an all-time high of ₹1,897 last week on November 14. Currently, trading at ₹1,836.10, the stock is just over 3 per cent below its peak. Additionally, it has surged almost 49 per cent from its 52-week low of ₹1,235, recorded in June 2024.

Meanwhile, Tech Mahindra hit a record high of ₹1,761.30 last month. The stock trades at ₹1,701.30, 3.4 per cent from its peak. It has experienced an over 46 per cent rise from its 52-week low of ₹1,163.70 hit in April 2023.

HCL Tech vs Tech Mahindra: A Comparative Look at Q2 FY25 Earnings

In the September quarter, HCL Tech, India’s third-largest IT services provider, revised its FY25 revenue growth outlook, raising the lower end of its guidance by 50 basis points to a range of 3.5-5 per cent, driven by improved client spending.

Meanwhile, in Q2 FY25, the Noida-based company reported a net profit of ₹4,235 crore, reflecting a 10.5 per cent year-on-year growth, though it remained flat sequentially. Revenue for the quarter stood at ₹28,862 crore, registering an 8.2 per cent year-on-year increase and a 2.9 per cent rise from the previous quarter. In US dollar terms, revenue grew by 6.8 per cent year-on-year and 2.4 per cent sequentially. Additionally, the total contract value (TCV) for the quarter increased to $2.2 billion, compared to $1.96 billion in the preceding quarter.

Meanwhile, Tech Mahindra reported a significant surge in its consolidated net profit for the July-September quarter. The profit climbed over two-fold to ₹1,250 crore, led by special income from asset sales, strong performance in European and non-American markets, and growth in the banking, financial services, and insurance (BFSI) segment.

In the same period last year, the company posted a net profit of ₹493.9 crore, as per an exchange filing. Revenue for Q2 FY25 increased by 3.49 per cent year-on-year, reaching ₹13,313.2 crore compared to ₹12,863.9 crore in Q2 FY24. The firm also reported net new deal wins with a Total Contract Value (TCV) of USD 603 million during the quarter.

HCL Tech vs TechM: Which IT stock should you pick?

The conclusion of the US elections has brought renewed optimism to the IT sector. This presents a promising growth opportunity for Indian IT majors. However, with varying business models, sectoral dependencies, and growth prospects, investors are now faced with the crucial question - which of these two IT giants offers a better investment opportunity in the current market landscape? Here's what experts suggest:

Ajit Mishra - SVP, Research, Religare Broking 

Ajit Mishra of Religare Broking prefers HCL Tech over Tech Mahindra. Given the current market dynamics and the potential for increased IT spending in the US, HCL Technologies appears to be a more favourable investment option. With approximately 62%-65% of its revenue derived from the US, HCL Tech is well-positioned to benefit from a potential uptick in IT spending by large enterprises, especially in a robust economic environment under the new administration. The company’s strong market presence, diversified product portfolio, and consistent performance further enhance its appeal. Additionally, HCL Tech is trading at a discount compared to Tech Mahindra, making it a more attractive choice for investors.

In contrast, Tech Mahindra’s heavy reliance on the telecom sector, which accounts for roughly 35%-40% of its revenue, ties its growth prospects to capex spending in areas like 5G and enterprise connectivity. Furthermore, its ongoing leadership transition could introduce uncertainties around operational stability and strategic direction. Looking ahead, it will be essential to monitor US trade policies, visa regulations, and dollar fluctuations, as these factors could significantly influence the Indian IT sector's performance.

Rushil Katiyar, Associate, Choice Broking

Rushil Katiyar is also bullish on HCL Tech as the IT major has a strong foundation underpinned by the robust gen AI and software business, hence great prospects for growth. Its AI Force digital suite allows HCLT to improve customer workflows and quality of service, well-positioned to benefit from the increasing adoption of GenAI, which strengthens demand for cloud services and data standardisation. The company has a strong position in the growth areas of legacy modernisation and emerging markets. Following a solid Q2, HCLT revised FY25 growth guidance upwards to 3.5-5% YoY in cc, supported by a strong deal pipeline in Data & AI, Digital Engineering, and SAP migration that balances its efforts towards sustainable growth.

Sujit Modi, CIO, Share.Market

Suji Modi of Share.Market finds both stocks to be equally compelling. Basis factor analysis powered by Share.Market research, both HCL Technologies and Tech Mahindra score 5/5 on Momentum, Sentiment, and Low Volatility. However, HCL Technologies fares better than Tech Mahindra on the Quality and Value factor scores. Investors can keep this in mind when deciding which stocks to add to their portfolio.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.