It’s not just the DWS deal, Morgan Stanley's outlook has painted HCL Tech green⁠ — along with TCS, Infosys and Wipro

IT stocks rally in the Indian stock market today led by HCL TechBCCL/BI India
  • HCL Tech’s share price jumped nearly 5% in morning trade on Monday.
  • The boost comes after the Indian IT services giant announced its acquisition of the Australian IT firm DWS.
  • Morgan Stanley expects HCL to benefit further from the sharp rupee depreciation, improving macro environment, and expanding margins.
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HCL Technologies’ continued to thrive after last week’s rally with the Indian IT services company’s acquisition of the Australian IT firm DWS. In morning trade, HCL Tech’s share price jumped by nearly 5%.

HCL Tech share price since March when the nationwide coronavirus lockdown was announced in IndiaBSE/BI India

"The acquisition will add around 1% to the company's top line in FY22E and will also help the company in expanding its presence in Australia and New Zealand," said ICICI Direct Research in a reported dated September 21 with a target price of ₹ 885.

But, it’s not just HCL Tech that’s swinging in the green. Morgan Stanley, expects other Indian IT services’ behemoths including Tata Consultancy Services (TCS), Wipro and Infosys to rise despite the pressure of the coronavirus pandemic in its report dated September 18.
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Company% change in share price
HCL Tech4.88%
Tech Mahindra2.26%
Infosys2.14%
TCS1.98%
Wipro1.91%
Source: BSE, share price as of 10:10 am on September 21 compared to last week’s closing

HCL Technologies’ optimism washes over other Indian IT companies


Last week, HCL Tech broke into the list of top 10 most valuable firms in India after it revised its guidance for this quarter to 3.5% revenue growth. Not only did that boost HCL Tech’s share price, but the optimism spilled over to other IT stocks as well.

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Tata Consultancy Services (TCS) for instance crossed the ₹ 900 lakh crore threshold to become the second most valuable company in India after Mukesh Ambani’s Reliance Industries.


The good times aren’t over for HCL Technologies and peers
Analysts estimate that HCL Tech is likely to benefit further from the sharp rupee depreciation, the macro environment and the expanding margins.

“Our higher bull case reflects a rebound in infrastructure services improving organic growth rates substantially, driving upside risk to our estimates,” said Morgan Stanley in its report date September 18.
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The rupee depreciation is just a boon for HCL Tech but for IT services peers as well since they are export oriented and their earnings are in dollars. The weaker the rupee, the more valuable their billings become.

With the rupee depreciating, company margins get to reap the benefits. More employees working from home also bolters margins with commute and reimbursement costs muted.

This is not only for HCL Tech but for IT peers as well. “Favourable currency movement including rupee depreciation versus the US dollar,” is also an upside risk for TCS and Infosys.
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The only obstacle that may get in the way for HCL Tech is that outcome on revenue guidance is lower than the run rate required, according to Morgan Stanley.

“Weakish commentary on deal wins in the coming quarters, which could indicate an inflection point in infrastructure services growth,” the report said.

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