Why did HCL Technologies witness a record fall at the stock exchange?

MUMBAI, INDIA: HCL Technologies shares plunged 15 per cent to Rs 834.85 on Thursday in its biggest one-day fall since January 7, 2009. Sadly, HCL Tech, India's fourth largest outsourcer, was the worst performer in the 50-share blue chip Nifty index today.

According to experts, the sharp sell-off was on account of the company’s caution Wednesday about the possibility of tepid revenue growth this quarter. Was that the sole reason for the fall?

Read the reasons:

Lower than expected revenue warning: HCL warned that its Q1 revenue will be lower-than-expected because of adverse currency impact, client specific issue (revenue loss of $20 million on account of client disengagement) and slowdown in its most critical infrastructure management services (IMS) vertical.

According to analysts, this is the second such warning after April 2015. And this rattled investors sending the company's shares sharply lower.

Nirmal Bang's Girish Pai said HCL Tech has little control over cross currency issues, but the other two factors client disengagement and lumpy growth in IMS are probably more serious and require a greater scrutiny.

Client program disputes: Anil Mascarenhas of IIFL wrote that the HCL stock could see pressure after the company warned about tepid revenue growth for the July-September quarter, citing depreciation of multiple currencies against the US dollar and a strong likelihood of disengagement in a multi-million dollar contract.

On the issues confronting a multi-million dollar contract, HCL Tech said that while discussions are on with the customer and it is in the process of disengagement, as a matter of prudence the company is considering reserving up to $20 million this quarter.

HCL Tech's case is a standalone one and will not impact the overall IT sector, said Rumit Dugar and Saumya Shrivastava of Religare. However, they noted that the frequency of client program disputes has been increasing of late.

Currency issues: HCL Tech is expected to emerge as the weakest performer among top 4 IT firms in the JAS quarter. According to Bank of America Merrill Lynch's Kunal Tayal, HCL Tech will post 1.5 per cent sequential growth in constant currency revenue and an operating (EBITA) margin of 20.3 per cent in the September quarter.

Fund manager Sandip Sabharwal said that IT companies get a major portion of their revenue in dollars, so rupee depreciation leads to translation gains.

Competition from tier-1 SIs: The slowdown in HCL Tech's IMS vertical (because of competition from other Tier-1 players) is worrisome because it is the biggest revenue generator for HCL Tech, analysts noted.

Weak application portfolio: According to Kotak, HCL Tech has weak applications portfolio and it also lags competition in the fast-growing, high-margin digital space, Kotak added. These factors are likely to weigh on HCL Tech shares.

HCL Tech's loss is Infosys and Tata Consultancy Services gain: According to reports, both Infosys and TCS saw increased buying on Thursday. HCL had outperformed TCS and Infosys in last one year; As of Wednesday's close, TCS was up 1.2 percent year-to-date, while Infosys was up 18 per cent while HCL Tech gained 23 percent.