Profit-booking hits HFCL: Is the stellar 165% rally finally cooling off?

Investors are hitting the sell button on HFCL shares after a blistering run this year, marking a second straight day of declines.

For months, HFCL was the darling of the markets, riding a wave of digital infrastructure demand that saw its stock price climb a staggering 165% in 2026. But the gravity of the markets has finally caught up. On Monday, the stock slipped nearly 5% to Rs 177.87, bringing the total correction to about 10% over two sessions. It’s a classic case of profit-booking after a period of intense, one-way momentum.

The recent retreat shouldn't distract from the company’s fundamental transformation. The business has shifted its gears significantly, with product revenue now accounting for 59% of the mix, up from just 27% in FY21. Exports have also climbed to 41%, signalling that HFCL is no longer just a domestic player. This transition was validated in the March quarter, where the company posted a net profit of Rs 184 crore, a massive swing from the Rs 83 crore loss reported in the same period last year.

Orders and the "AI backbone"

The rally was never just about sentiment; it was backed by tangible order wins. The company recently bagged a Rs 135.09 crore deal from RailTel, a PSU under the Ministry of Railways, to maintain the “Secure Operations Network” for India’s defence forces.

This is part of a broader structural trend. As AI technologies expand globally, the demand for robust, high-speed optical fibre networks has become non-negotiable. HFCL has positioned itself as a core player in this backbone, a factor that continues to support its long-term narrative even if the stock chart looks shaky in the short term.

The technical reality check

Despite the strong growth story, the numbers on the screen suggest investors are right to be cautious. With a price-to-earnings multiple of 91.93, the stock is trading at a significant premium compared to its peers in the telecom equipment sector.

Technical indicators are echoing these valuation concerns. A 14-day Relative Strength Index (RSI) of 73.1 marks the stock as "overbought," a zone where traders typically expect a period of consolidation or a deeper pullback. Institutional behaviour reflects this uncertainty; while mutual funds have been increasing their holdings, Foreign Institutional Investors (FIIs) trimmed their stake slightly to 7.08% in the March quarter.

Why it matters: The bigger picture

The cooling off in HFCL shares is a reminder that even the strongest growth stories need a breather. The market is currently undergoing a reality check: investors are weighing the company's impressive turnaround and defence-led order book against the stretched valuations that followed its explosive rally. For those holding the stock, the current dip is likely a correction of sentiment rather than a crack in the company's operational strength. However, the days of easy, vertical gains may be behind us for a while, as the stock moves toward a more sustainable phase of discovery.