Morgan Stanley has initiated a tactical buy rating on HCL Technologies , expressing optimism about the IT services company's prospects in the near term. The investment bank's recommendation is based on several key factors that point toward potential outperformance.

Growth Visibility and Financial Outlook

The brokerage firm anticipates improved growth visibility for HCL Technologies heading into FY27. This enhanced clarity on future business prospects forms a cornerstone of Morgan Stanley's positive assessment of the company's trajectory.

Margin Performance Expectations

Morgan Stanley has highlighted margin expectations of approximately 18% as a significant driver for their buy recommendation. This margin target represents an important benchmark for HCL Technologies' operational efficiency and profitability in the coming periods.

Analyst Consensus Trends

The investment bank has noted rising consensus estimates among analysts covering HCL Technologies. This upward trend in analyst expectations suggests growing confidence in the company's ability to deliver on its financial and operational targets.

Investment Rationale

Morgan Stanley's tactical buy rating reflects their expectation that HCL Technologies will outperform in the near term. The combination of improved growth visibility, margin targets, and positive analyst sentiment creates a favorable investment thesis for the IT services provider.

HCL Technologies has delivered strong third-quarter results for FY26, with management expressing confidence about the company's prospects for FY27 despite anticipated global volatility. CEO and MD C Vijayakumar described the performance as "very strong across all parameters," marking the second consecutive quarter of robust results.

Strong Financial Performance in Q3FY26

The company reported solid financial metrics for the October-December quarter, demonstrating consistent growth momentum.

Robust Order Book Drives Future Confidence

Vijayakumar highlighted that the company's strong booking performance provides a solid foundation for future growth. The management noted that bookings in Q2 and Q3 were nearly 30% higher than the same period last year, creating positive momentum for upcoming quarters.

This strong order book performance is expected to translate into meaningful revenue uptick in Q4 of the current financial year as well as Q1 of the next financial year. The CEO emphasized that the strength of the order book, pipeline visibility, and overall business momentum support expectations of positive outcomes in FY27.

Restructuring Exercise Nearing Completion

CFO Shiv Walia provided updates on the company's ongoing restructuring initiative, which has been a key focus area. The restructuring exercise primarily addressed skill and location mismatches identified in Q1, along with underperformance in some acquisitions, particularly in the automotive segment across Western geographies.

The management expects to complete this restructuring exercise by the end of FY26, allowing the company to start FY27 with a clean slate.

Margin Recovery Outlook

With restructuring costs expected to be contained, HCLTech management remains optimistic about margin recovery. Vijayakumar noted that excluding restructuring costs, the company is only 10-11 basis points away from its target margin range this quarter. The management expects margins to move back towards the 18-19% band in FY27 once restructuring activities conclude.

Regarding the new labor code impact, Walia indicated that beyond a one-time charge, the recurring impact would be minimal at 10-20 basis points going forward.

Advanced AI Business Shows Strong Momentum

The company's advanced AI business continues to demonstrate robust growth, currently contributing ₹147-148 million per quarter and growing at approximately 20% quarterly pace. This represents about 4% of overall consolidated revenue.

Vijayakumar explained that advanced AI encompasses infrastructure enablement work, silicon design for edge inferencing chips, agentic solutions, and proprietary AI intellectual property. The management expects this momentum to continue for several quarters due to strong fundamental demand drivers.

Acquisition Strategy and Future Outlook

The company expects recent acquisitions including Jaspersoft and HPE to contribute approximately 1.5% growth to the overall company in FY27, assuming closure by March or early April. However, management indicated they are not planning large-scale acquisitions, instead focusing on capability-led acquisitions or specific geographic expansion opportunities.

While acknowledging the multiple global uncertainties that make FY27 volatile, Vijayakumar emphasized that leading indicators remain encouraging, with specific guidance to be shared after the April meetings.