Forget selling! FIIs doubled down on this AI multibagger stock that's up 200% YTD

Foreign investors have been selling Indian equities for months. Now, they are returning to a select set of stocks, with HFCL emerging as one of the biggest beneficiaries of this selective comeback. Although foreign institutional investors (FIIs) have pulled out nearly $20 billion in FY26, the selling has not been broad-based.

Instead, their return is increasingly value-driven and focused on select opportunities. The pace of outflows has eased as India's valuation premium over emerging markets cooled to its historical average of around 50%, though overseas allocations remain highly sensitive to global macroeconomic developments.

One stock that has emerged as a clear favourite is optical fibre manufacturer HFCL. The stock has surged 200% in 2026 and 238% over the past six months, prompting FIIs to more than double their stake in the company to 15.7% in the June quarter from 7.1% in March.


The sharp increase in foreign ownership comes as India's data centre industry enters a multi-year growth cycle, driven by accelerating digitalisation, rising cloud adoption and growing demand for artificial intelligence (AI) infrastructure.

According to international brokerage Nomura, India's data centre IT load has grown from around 350 MW in 2019 to 1.5-1.6 GW in 2025, translating into a 29% CAGR, significantly outpacing the global growth rate of around 20%.

HFCL’s rise to the top decoded

HFCL's first-quarter numbers help explain why the stock has emerged as a favourite among investors. The company reported its highest-ever order book of around Rs 26,665 crore in Q1FY27, nearly five times its FY26 revenue, providing strong long-term revenue visibility.

Its export business also witnessed a sharp acceleration. Export revenue surged to Rs 1,063.3 crore, accounting for 55.5% of total revenue in Q1FY27, compared with Rs 209.7 crore, or 24.1% of revenue, a year earlier.

Reflecting the strong momentum, HFCL has revised its FY27 revenue growth guidance to 40%. The board has also approved an investment of Rs 215 crore to set up a manufacturing facility for advanced AI data centre connectivity solutions.

Alongside this, the company is expanding its optical fibre and optical fibre cable capacities while adding new manufacturing capabilities to meet rising demand. The investments underscore HFCL's efforts to capitalise on the rapid expansion of AI infrastructure and data centres.

The financial performance also marked a sharp turnaround. HFCL reported a net profit of Rs 246 crore in Q1FY27, compared with a net loss of Rs 29.3 crore in the year-ago period. Revenue from operations more than doubled to Rs 1,915 crore from Rs 871 crore, reflecting 120% YoY growth.

On robust growth runway

HFCL attributed its strong financial performance to several structural growth drivers, including rising demand from hyperscale data centres, improved product realisations, operating leverage from economies of scale, a diversified portfolio of high-value technology products and expanding export opportunities. The company expects these trends to continue supporting growth.

Managing Director Mahendra Nahata said HFCL's strategic initiatives are now translating into tangible results, marking the beginning of a new phase of accelerated and profitable growth. He added that the convergence of AI, digital infrastructure, optical connectivity and defence modernisation is creating significant long-term opportunities for the company.

Meanwhile, HFCL's capacity expansion programme remains on track. The company plans to increase its optical fibre capacity from 28 million fibre kilometres (fkm) to 34 million fkm, while optical fibre cable capacity will be expanded from 34 million fkm to 43 million fkm. The expansion, along with ongoing backward integration initiatives, is expected to strengthen HFCL's ability to meet rising global demand.

Why do analysts still suggest Buy?

The bull case for HFCL, however, extends well beyond optical fibre and data centres. Deven Choksey Research sees another 75% upside, describing the company's defence and aerospace business as the "X-factor" that could transform its investment case. Earlier this week, the brokerage initiated coverage on HFCL with a 'Buy' rating and a target price of Rs 362.

HFCL has consolidated its defence assets under HFCL Advance Systems (HASPL), bringing together aerostructure manufacturing—including the acquired business with an export order book of over Rs 2,000 crore—along with radar and surveillance systems through Raddef, and thermal weapon sights under a single scalable platform.

The company is also setting up an ammunition manufacturing facility in Andhra Pradesh to produce electronic fuzes, multi-mode hand grenades—where only three companies hold licences in India, and 155 mm artillery shells.

"We expect defence revenue to rise from Rs 77 crore in FY26 to Rs 400 crore in FY27, Rs 1,200 crore in FY28 and Rs 5,000 crore in FY29, with EBITDA margins exceeding 25%. Importantly, defence customers provide advance payments, significantly improving working capital dynamics compared with the legacy EPC business," Deven Choksey said.

The brokerage also noted that HFCL is transitioning from a commodity optical fibre cable (OFC) supplier to a high-value AI optical connectivity platform through its newly launched OptiQ AI brand.

"Through subsidiary HTL Limited, data centre interconnect (DCI) solutions are expected to contribute Rs 400 crore in FY27 and Rs 800 crore in FY28, at margins above the blended corporate average. The global AI optical interconnect total addressable market (TAM) is projected to reach $73 billion by CY30," the brokerage added.

According to Deven Choksey Research, HFCL is at an inflection point where three structural shifts are converging simultaneously. The company is transforming from a domestic EPC-dependent telecom contractor into an export-led, product-driven technology platform spanning AI optical connectivity, defence electronics and aerospace manufacturing.

The brokerage expects products to account for more than 80% of revenue, up from 62% currently, while exports are projected to exceed 50%, compared with 41% now. Defence is also expected to emerge as a meaningful second growth engine alongside the core OFC and DCI businesses. Together, these shifts could materially improve HFCL's earnings quality, working capital profile and market perception over the next three years.

"The preform backward integration and the OptiQ AI brand have created structural competitive moats that did not exist 18 months ago. HFCL is evolving from a single-segment OFC manufacturer into a diversified, multi-vertical technology platform, and the building blocks for that transformation are already in place," the brokerage said.

Monarch Networth shares a similar view. The brokerage believes HFCL has rapidly evolved from a predominantly domestic optical fibre cable manufacturer into a globally diversified technology company.

It also highlighted that HFCL is India's largest optical fibre cable manufacturer and the first domestic company to develop and commercialise 5G Fixed Wireless Access (FWA) customer-premises equipment (CPE).

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)