HCL Tech – What’s next post Q4 FY16 miss?

HCL Tech – What’s next post Q4 FY16 miss?

HCL Tech has fallen to 52-weeks low on the back of disappointing set of numbers for the quarter ended March 2016 (Q4 FY’16).

India’s fourth-largest information technology services firm reported lower-than-expected growth (0.3%) in consolidated net profit at Rs 1,926 crore for Q4FY16 on sequential basis. Revenues grew 3.4% at Rs 10,698 crore on quarter on quarter (QoQ) basis.

The stock enjoyed a strong support around 800 levels in the last 3 months and despite the global sell-off during Jan & Feb ’16 , the 800 levels didn’t give up and in fact offered me buying opportunity for 5% target at four different instances.

Now with the strong 800 levels couldn’t withstand on the back of huge disappointment in results investors started to scramble for an answer about what next?

Is it a good time to buy? or time to exit? or does the stock have any fuel to consider “holding” the long position.

Despite the heavy sell-off and uncertainty prevailing in the minds of the investors, most of the brokerage houses maintain ‘buy’ rating on the stock with revised price target.

Leaving aside, brokerage views I would like to add my views as well.

The stock maintained a strong uptrend right after recovering from 2008 recession blows (which swept the market very badly) and the uptrend continued till the beginning of 2015 –HCL Tech became second-most preferred investment for the investors in IT sector, only next to Infosys and ahead of TCS during the last few years.

The stock started to consolidate after 2015 highs and suffered serious blows  whenever the quarterly results failed to beat the market expectations or if the management fails to add fuel to the already over-enthusiastic crowd.

The stock found it’s support around 800 levels as stated above (which happens to be 75.4% Fibonacci retracement) and held well for the last 3 months.

During the strong uptrend, the stock has formed accelerating trend line and the latest trend line support lies at 742 Rs, which is also the lows of 2014 – 742 levels offered good support in 2014 before the stock resumed the upward momentum to reach 2015 highs.

HCL Technical Analysis

The fundamentals of the stock remains intact and in spite of some of the brokerage houses made small revisions to the target, there’s no major changes to the fundamental outlook which can take away the sheen of this IT major .

The accelerating trend line support, 2014 level support, brokerage houses confidence and the strong fundamentals back my opinion of HCL Tech is a good buy at 742 levels for the first target of 880 Rs.

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