HCL Technologies, India's fourth largest software services firm, slumped as much as 9 per cent on Tuesday, as traders were disappointed by its in-line earnings and hurt by concerns about the global economic slowdown.
HCL, which counts Microsoft, IBM, HP and Oracle as partners, said consolidated profit jumped 50 per cent to Rs 4.97 billion for July-Sept on growth across geographies and categories.
Revenue rose 25.4 per cent to Rs 46.51 billion, on an average exchange rate basis.
"This extent of share fall is not justified," said Rohit Anand, an analyst at PINC Research, adding that the stock was probably correcting the swift run up it has had ahead of the results.
HCL shares, valued at more than $6 billion, gained 14 per cent in a month in a broader market that was little changed. At close, its shares were down 8.75 per cent at Rs 401.60 in a Mumbai market that was down 1.63 per cent.
A Reuters poll of brokerages showed analysts expected HCL Tech's profit to rise 45.6 per cent to Rs 4.81 billion, on revenue of Rs 47.7 billion.
The share was also hurt by a rising concern about global slowdown after comments from the German finance minister against a quick-fix to Europe's debt problems, slowing growth in China and a warning on France's sovereign credit rating.
For HCL, the volume growth of just 4.1 per cent in dollar terms on the quarter was a little negative as it reflected a slowing demand, Anand said.
A lower-than-expected earnings by India's top software exporter Tata Consultancy Services (TCS) late on Monday, has clouded the outlook for the outsourcing sector.
India's $76 billion showpiece IT sector, which feeds off increased outsourcing by companies looking to cut costs, is expected to face pricing pressure and a decline in new orders as Europe struggles with a debt crisis and the United States sees an economic slowdown.
"The macro environment looks bleak but the economic opportunity for HCL looks strong," said chief executive Vineet Nayar.
HCL is betting big on massive vendor churn underway in the outsourcing sector, whereby overseas clients are looking for new vendors to renew their contracts.
Quoting information service group TPI, Nayar said deals worth $8 billion will come up for renewal in Oct-Dec quarter. Europe will continue to be a big growth driver for the firm, Nayar said.
Overall IT budgets for overseas clients are 'either static or probably going down', Nayar said, adding that a clarity on new spending by clients will emerge in the January quarter.
The pricing environment was stable at present, Nayar said.
HCL Tech expects to clock an EBIT margin of 14 per cent on constant currency basis for FY12 that ends in June.
The operating margin expanded to 17.1 per cent for the Sept-quarter from 16.3 per cent a year-ago but was lower from 18.5 per cent in the June quarter on account of wage hike and fresh hiring.
HCL signed 12 deals and added 3,474 employees on a net basis during July-Sept.