Shares of Wipro have underperformed their peers Tata Consultancy Services and Infosys in terms of returns in 2022 and in the last one year. Wipro stock has slipped 45%, emerging as the top loser among the IT giants this year. Wipro shares which closed at Rs 715.20 on December 31, 2021 were trading at Rs 393.90 in the current session. On the other hand, Infosys stock has lost 18.48% and shares of TCS have tumbled just 12.11% in 2022.
However, Wipro is the cheapest stock available in terms of price among the IT majors. Hence, it attracts huge investor interest whenever it corrects with some analysts terming the dip as an opportunity to enter and others advising investors to be cautious. This time too, analysts have had mixed opinions on the prospects of the stock.
Despite being priced lower compared to peers, the Wipro stock has been falling for since the second half of 2021. Here’s a look at factors which have led to the correction in the stock of Bengaluru-based IT major.
Geopolitical risks
Wipro earns around 90% of revenues from America and Europe. Any political risk related to US or Europe and slowdown in their economic growth is a key concern. The ongoing Russia-Ukraine war has dimmed the prospects of business activities across the world, including the US and Europe. This has affected the business of Azim Premji-led Wipro including others.
“The crisis in Ukraine, the energy crisis, and a possible recession are heightening uncertainties & weakening the global macro-economic phenomena, which will impact clients,” said KRChoksey.
“We are factoring in a FY22-24 USD revenue CAGR of 7.8% – the weakest in our Tier I IT Services coverage,” said Motilal Oswal.
Also Read: Wipro shares down 45% this year; good time to buy?
Gross margins taking a hit
Acquisitions by Wipro too have affected the IT major’s gross margins in nearly two years. Over the last eight quarters, margins of the firm have declined by over 600 bps, primarily due to acquisitions like Capco and Rizing, which have led to a big reset at gross margin levels, a report by Phillip Capital said.
Low expectations from consulting business
Wipro’s management expects a slowdown in its consulting business in the December quarter due to macro uncertainty and geo-political tension. Also, the challenges in Europe, wage hikes, acquisitions and travel costs are denting their margins.
“We have already seen an impact with some slowdown in Capco, which changes the nature of deals with clients, with a greater skew towards productivity deals,” according to KRChoksey.
Weak performance expectations
The management expects weak growth in Q3FY23. It sees Q3FY23 revenue to grow only 0.5%-2%, indicating weak business performance in the near term. “The low employee addition in 2QFY23 leads to near term growth concerns,” said KRChoksey.
Incremental downside risks are higher in the technology vertical (12% of revenue) and in BFSI consulting/Capco (9% of revenue) for Wipro, according to analysts.
Also Read: Infosys vs TCS vs Wipro: Which stock is Nomura’s top IT sector pick?
