Wipro shares down 40% in two years; what should investors do?

Shares of Wipro Ltd have fallen 40% in two years, leaving long-term investors guessing whether they should hold or exit their position in the IT stock. It has remained flat in terms of returns on a year-to-date basis (-0.46%) and in a year (-1.49%). Wipro shares have declined 11% from their 52 week high of Rs 443.60 hit on September 15 this year. The IT stock hit an all-time high of Rs 726.70 on January 3, 2022. Wipro stock closed 2.54% higher at Rs 391.40 on Wednesday against the previous close of Rs 381.70 on BSE. It had very low volatility in a year with a beta of 0.3.

The stock is neither oversold nor overbought on technical charts with its relative strength index (RSI) at 35.7. Shares of Wipro are trading higher than the 5 day, 10 day, 20 day but lower than the 30 day, 50 day, 100 day, 150 day and 200 day moving averages signaling the stock is trading in a bearish zone.

Wipro stock touched an intraday high of Rs 392.20. Market cap of Wipro rose to Rs 2.04 lakh crore on BSE. Total 5.67 lakh shares of the firm changed hands amounting to a turnover of Rs 22.05 crore on BSE.

Brokerage firm KR Choksey in its November 3 report lowered its target price to Rs 391 against Rs 486 earlier.

"Wipro is currently trading at a valuation with a P/E multiple of 16.4x/14.7x on FY24E/FY25E earnings. Wipro is winning large transformation deals, benefitting from a consolidating market, and deepening relationships with existing clients. Hence, we are assigning a P/E multiple of 16x to the FY25 estimated EPS of Rs 24.46 to arrive at a revised target price of Rs 391 (Earlier Target price Rs 486) per share, an upside of 1.82% over the CMP. Accordingly, we revise our view to a 'HOLD' rating for the stock," said the brokerage.

Post Q2 earnings, Nuvama Institutional Equities had reduced its target price to Rs 390 from Rs 400 earlier post Q2 earnings. Wipro’s muted Q2 performance and disappointing Q3 guidance reaffirm its troubles with converting deal wins into growth.

"The decline in H1 (and Q3 guidance) translates to Wipro reporting YoY decline for FY24 – significantly below peers. We continue to expect Wipro to underperform peers, primarily due to its intriguingly low correlation between deal-wins and top line growth. The stock’s inexpensive valuation and high dividend yield should limit downside potential in the medium-term," it said.

Nomura India trimmed its target price for Wipro by 5 per cent to Rs 400 as it cut EPS estimates for Wipro by 3-6 per cent. Nomura India's FY24-26 EPS projections are 8-12 per cent lower than the Street estimates.

Nirmal Bang Institutional Equities reduced its target for the Wipro stock to Rs 353 from Rs 358 earlier.

Wipro will likely clock a dollar revenue decline of 4.5 per cent in FY24, which the brokerage said would be the weakest among its Indian peers. Wipro's higher exposure to consulting (through Capco and Rizing) may likely been one of the factors, the brokerage said.

Wipro reported earnings below expectations in the second quarter of this fiscal. It logged a marginal drop in its second quarter profit for the financial year 2023-24. The IT firm logged a 0.48 per cent fall in its Q2 FY24 profit at Rs 2,646.3 crore (year-on-year) from Rs 2,659 crore in the year-ago period. The IT firm’s consolidated revenue from operations declined 0.1 per cent to Rs 22,516 crore for the three months to September 30 from Rs 22,540 crore in the corresponding period last year.

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