Quality Assessment: Sustained Operational Strength Amid Low Leverage
Hexaware Technologies continues to demonstrate robust operational quality, underscored by its consistent quarterly performance. The company reported its highest-ever quarterly net sales of ₹3,483.60 crores and a peak PBDIT of ₹601.30 crores in Q2 FY25-26. Its operating profit margin to net sales reached a record 17.26%, signalling efficient cost management and strong business fundamentals. Furthermore, Hexaware maintains a conservative capital structure with an average debt-to-equity ratio of zero, reflecting a debt-free balance sheet that reduces financial risk and enhances stability.
Return on equity (ROE) stands at a healthy 20.3%, indicating effective utilisation of shareholder funds. The promoter group remains the majority shareholder, providing continuity and strategic direction. These factors collectively sustain Hexaware’s quality grade, supporting its position as a reliable mid-to-large cap IT services firm.
Valuation: Elevated Price-to-Book Ratio Suggests Expensive Stock
Despite strong fundamentals, valuation metrics have become a concern. Hexaware’s price-to-book (P/B) ratio currently stands at 8, which is considered expensive relative to industry peers and historical averages. This elevated valuation implies that the market has priced in significant growth expectations, leaving limited margin for error. While the company’s profits have risen by 18% over the past year, the stock’s total return has been flat at 0.00% during the same period, indicating a disconnect between earnings growth and share price appreciation.
Comparatively, the broader Sensex index has delivered an 8.51% return over the last year, highlighting Hexaware’s underperformance on a relative basis. This valuation premium, combined with subdued price momentum, has contributed to a downgrade in the overall investment grade from Buy to Hold.
Financial Trend: Positive Earnings Momentum but Mixed Returns
Hexaware’s recent financial trend remains positive, with three consecutive quarters of strong results reinforcing its earnings momentum. The company’s net sales and operating profits have reached new highs, reflecting sustained demand for its software and consulting services. However, the stock’s return profile presents a more complex picture. While short-term returns over one week and one month have been positive at 1.43% and 3.1% respectively, the year-to-date return is negative at -0.63%, slightly underperforming the Sensex’s -0.04% over the same timeframe.
Longer-term returns remain robust, with a five-year gain of 61.4% and a ten-year return exceeding 213%, though these lag the Sensex’s 77.96% and 225.63% respectively. This divergence suggests that while the company’s financial health is improving, market sentiment and price appreciation have not fully aligned, warranting a more cautious outlook.
This week's revealed pick, a Large Cap from Public Banks with TARGET PRICE, is already showing movement! Get the complete analysis before it's too late.
- - Target price included
- - Early movement detected
- - Complete analysis ready
Technical Analysis: Shift from Mildly Bullish to Sideways Momentum
The most significant factor influencing the downgrade is the change in Hexaware’s technical grade. Previously characterised by a mildly bullish trend, the technical outlook has shifted to a sideways pattern, signalling uncertainty in near-term price direction. Key technical indicators present a mixed picture:
- MACD: Weekly readings remain bullish, but monthly data have turned mildly bearish, indicating weakening momentum over longer periods.
- RSI: Both weekly and monthly Relative Strength Index levels show no clear signal, reflecting a lack of strong buying or selling pressure.
- Bollinger Bands: Weekly indicators remain bullish, while monthly bands are mildly bullish, suggesting some volatility but no decisive trend.
- Moving Averages: Daily averages have turned mildly bearish, hinting at short-term price softness.
- KST (Know Sure Thing): Weekly readings are mildly bullish, with monthly indicators bullish, supporting some underlying strength.
- Dow Theory: Weekly data are mildly bearish, and monthly data show no clear trend, underscoring market indecision.
- On-Balance Volume (OBV): Weekly OBV is mildly bullish, but monthly volume trends show no clear direction.
Price action has been relatively muted, with the current share price at ₹759.80, slightly below the previous close of ₹764.60. The stock trades well below its 52-week high of ₹900.15 but comfortably above the 52-week low of ₹592.95. This consolidation phase reflects investor caution amid mixed technical signals, contributing to the Hold rating.
Comparative Market Performance and Sector Context
Hexaware operates within the highly competitive IT software and consulting sector, which has experienced varied performance across peers. While the company’s Mojo Score stands at 62.0, categorised as Hold, this represents a downgrade from the previous Buy grade. The Market Cap Grade remains low at 2, indicating moderate market capitalisation relative to sector leaders. This rating adjustment aligns with the broader sector’s cautious sentiment amid global economic uncertainties and evolving technology demand.
Holding Hexaware Technologies Ltd from Computers - Software & Consulting? See if there's a smarter choice! SwitchER compares it with peers and suggests superior options across market caps and sectors!
- - Peer comparison ready
- - Superior options identified
- - Cross market-cap analysis
Outlook and Investor Considerations
While Hexaware Technologies Ltd continues to deliver strong operational results and maintain a solid financial foundation, the combination of an expensive valuation and a shift to sideways technical momentum has tempered enthusiasm. Investors should weigh the company’s positive earnings trajectory and low leverage against the risk of limited upside in the near term due to valuation pressures and uncertain price trends.
For long-term investors, Hexaware’s consistent profitability and sector positioning remain attractive, but the Hold rating suggests a prudent approach until clearer technical signals emerge or valuation becomes more compelling. Monitoring quarterly results and sector developments will be crucial to reassessing the stock’s investment potential.
Summary of Rating Change
In summary, the downgrade from Buy to Hold on 1 January 2026 reflects:
- Quality: Strong operational metrics and zero debt support a positive quality outlook.
- Valuation: Elevated P/B ratio of 8 and flat stock returns despite profit growth indicate expensive pricing.
- Financial Trend: Positive earnings momentum but mixed short-term returns relative to Sensex.
- Technicals: Shift from mildly bullish to sideways trend with mixed indicator signals, signalling caution.
This comprehensive reassessment aligns with MarketsMOJO’s analytical framework, providing investors with a balanced view of Hexaware’s current standing within the IT software and consulting sector.
Only Rs. 9,999 - Get MojoOne + Stock of the Week for 1 Year (MRP = Rs. 34,999) Start Today
