Wipro Ltd. Downgraded to Sell Amid Weak Technicals and Flat Financials

Technical Trends Signal Increased Bearishness

The most significant driver behind the downgrade is the change in Wipro’s technical grade, which has shifted from mildly bearish to outright bearish. Key technical indicators paint a mixed but predominantly negative picture. The Moving Average Convergence Divergence (MACD) remains bearish on both weekly and monthly charts, signalling sustained downward momentum. Similarly, the Know Sure Thing (KST) indicator is bearish across weekly and monthly timeframes, reinforcing the negative trend.

While the Relative Strength Index (RSI) shows bullish signals on weekly and monthly scales, suggesting some short-term buying interest, this has not been sufficient to offset the broader bearish sentiment. Bollinger Bands indicate mild bearishness weekly and bearishness monthly, while daily moving averages also confirm a bearish stance. The Dow Theory analysis shows no clear trend weekly and a mildly bearish trend monthly, further underscoring the technical challenges.

On the volume front, the On-Balance Volume (OBV) is mildly bearish on both weekly and monthly bases, indicating that selling pressure is outweighing buying interest. These technical signals collectively suggest that Wipro’s stock price is likely to face continued downward pressure in the near term.

Valuation Improves to Very Attractive Despite Market Headwinds

Contrasting the bearish technical outlook, Wipro’s valuation grade has improved markedly from attractive to very attractive. The company currently trades at a price-to-earnings (PE) ratio of 17.06, which is lower than key peers such as TCS (19.22) and Infosys (19.52). Its enterprise value to EBITDA (EV/EBITDA) ratio stands at 10.92, also more favourable compared to the industry average.

Other valuation metrics bolster this positive view: a price-to-book value of 2.64, an enterprise value to capital employed ratio of 3.78, and a PEG ratio of 2.51. The dividend yield is notably high at 5.10%, appealing to income-focused investors. Return on capital employed (ROCE) is robust at 29.63%, while return on equity (ROE) stands at 15.77%, reflecting efficient capital utilisation and strong management performance.

When compared with peers, Wipro’s valuation metrics suggest it is trading at a discount, offering a potentially attractive entry point for value investors despite the current market headwinds.

Financial Trends Remain Flat, Raising Concerns Over Growth Prospects

Wipro’s financial performance in the recent quarter (Q3 FY25-26) has been largely flat, contributing to the cautious outlook. Operating profit has grown at a modest annual rate of 5.44% over the past five years, which is below expectations for a company in the IT software sector. The operating profit to net sales ratio for the quarter is at a low 18.24%, signalling margin pressures.

Profit before tax (PBT) excluding other income has declined by 9.29% to ₹3,128.60 crores, indicating challenges in core profitability. The debtors turnover ratio for the half-year is also at a low 7.56 times, suggesting slower collections and potential working capital inefficiencies.

These factors have translated into underperformance relative to benchmarks. Over the past year, Wipro’s stock has delivered a negative return of -29.35%, significantly lagging the BSE Sensex’s positive 9.81% return. Even over three and five years, the stock’s returns of 6.25% and 0.30% respectively pale in comparison to the Sensex’s 36.80% and 61.40% gains.

Quality Metrics Show Mixed Signals

Despite the subdued financial growth, Wipro exhibits strong management efficiency and financial health. The company maintains a low average debt-to-equity ratio of zero, indicating a conservative capital structure with minimal leverage risk. Its ROE of 15.8% and ROCE of 29.63% reflect effective utilisation of equity and capital employed, which are positive quality indicators.

However, the flat financial trend and declining profitability metrics temper these positives, suggesting that while the company is well-managed, it faces headwinds in sustaining growth momentum in a competitive IT services landscape.

Technical and Valuation Divergence Creates Investor Dilemma

The downgrade to Sell by MarketsMOJO, reflected in the Mojo Score of 47.0 and a Mojo Grade shift from Hold to Sell, encapsulates the tension between technical weakness and valuation attractiveness. The technical indicators warn of further downside risk, while valuation metrics suggest the stock is undervalued relative to peers and historical norms.

Investors must weigh these factors carefully. The stock’s current price of ₹215.80 is near its 52-week low of ₹209.15, far below the 52-week high of ₹316.50, indicating significant price erosion. The recent daily trading range between ₹212.20 and ₹219.35 shows limited volatility but persistent downward pressure.

Given the company’s flat financial performance, weak recent returns, and bearish technical signals, the downgrade reflects a prudent stance. However, the very attractive valuation and strong dividend yield may appeal to value investors with a longer-term horizon willing to tolerate near-term volatility.

Conclusion: Cautious Approach Recommended Amid Mixed Signals

Wipro Ltd.’s recent downgrade to Sell reflects a nuanced assessment of its current investment merits. The company’s technical indicators have deteriorated, signalling potential further downside in the near term. Financial trends remain flat with subdued profitability growth, and the stock has underperformed key market benchmarks over multiple timeframes.

Conversely, valuation metrics have improved to very attractive levels, supported by a strong dividend yield and efficient capital management. This valuation appeal may offer a cushion for long-term investors, but the prevailing technical weakness and lacklustre financial momentum warrant caution.

Investors should monitor upcoming quarterly results and technical developments closely. Those with a higher risk tolerance may consider accumulating at current levels, while more conservative investors might await clearer signs of financial recovery and technical stabilisation before committing fresh capital.

Upgrade at special rates, valid only for the next few days. Claim Your Special Rate →