HCL Technologies

Investors can book profits selling a part of their holdings in HCL Technologies, in light of the expensive valuations that the stock currently trades at. At Rs 339, the stock discounts its likely 2009-10 per share earnings by nearly 18 times. Not only has this narrowed the gap with peers such as Infosys, TCS and Wipro, it is also at the upper end of historic valuations for the stock. The company has had some reasonable deal wins in the last couple of quarters and may benefit from vendor consolidation which could prove beneficial to large IT players.

But the markets may have read too much into the June quarter numbers, apart from overlooking other concerns. HCL’s June quarter performance, especially on the net profits front has been made possible due to a combination of containing employee costs, selling and marketing expenses as well as a significant forex gain component. In the upcoming quarters, fluctuation in forex losses and employee costs could increaseOn a trailing 12-month basis, the contribution from its top 20 clients has declined significantly, as has the repeat business percentage. This suggests sluggishness in client ramp-ups.