Why is Wipro Ltd. falling/rising?

Recent Price Movements and Market Context

Wipro’s stock has been under pressure for the past week, losing 7.25% compared to the Sensex’s modest decline of 1.47%. Over the past month, the stock has fallen sharply by 16.03%, while the Sensex gained 0.84%. Year-to-date, Wipro’s share price has dropped 24.01%, significantly underperforming the benchmark index, which declined by only 3.51% in the same period. The stock also hit a new 52-week low of ₹199.5 during intraday trading on 24-Feb, signalling sustained bearish sentiment.

Despite the broader IT software sector falling by 4.39% on the day, Wipro marginally outperformed its peers by 1.6%. However, the stock remains below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, indicating a persistent downtrend and weak technical momentum.

Investor participation appears to be waning, with delivery volumes on 23-Feb falling by 3.04% compared to the five-day average. This decline in trading activity suggests reduced confidence among shareholders and less enthusiasm for accumulating the stock at current levels.

Fundamental Performance and Valuation

Wipro’s fundamentals present a mixed picture. The company boasts a high return on equity (ROE) of 16.48%, reflecting efficient management and effective utilisation of shareholder capital. Its debt-to-equity ratio remains at zero, indicating a conservative capital structure with minimal leverage risk. The stock trades at a price-to-book value of 2.5, which is considered fair relative to its historical peer valuations.

Despite these positives, the company’s long-term growth trajectory is underwhelming. Operating profit has grown at a modest annual rate of 5.44% over the past five years, which is below expectations for a leading IT services firm. Additionally, recent quarterly results have been flat, with key metrics such as the debtors turnover ratio at a low 7.56 times and operating profit to net sales ratio at 18.24%, signalling operational challenges.

Profit before tax (excluding other income) stood at ₹3,128.60 crore in the latest quarter, marking one of the lowest levels in recent periods. This stagnation in profitability has contributed to the stock’s poor returns, with a one-year loss of 32.15%, significantly underperforming the BSE500 index and the broader market.

Nonetheless, Wipro offers a relatively high dividend yield of approximately 5.34%, which may provide some income cushion for investors amid the share price decline. The company’s profits have risen by 7% over the past year, but this has not translated into positive stock performance, partly due to a PEG ratio of 2.3, suggesting the stock may be overvalued relative to its earnings growth.

Conclusion: Why Wipro Is Falling

The decline in Wipro’s share price on 24-Feb and over recent periods can be attributed to a combination of weak financial performance, subdued growth prospects, and broader sectoral pressures. The stock’s consistent underperformance relative to the Sensex and BSE500 indices highlights investor concerns about the company’s ability to deliver robust earnings growth in the near term.

Technical indicators reinforce the bearish outlook, with the stock trading below all major moving averages and hitting new lows. Reduced investor participation further compounds the negative sentiment. While the company’s strong management efficiency, low debt, and attractive dividend yield offer some positives, these factors have not been sufficient to offset the impact of flat quarterly results and disappointing profit growth.

Investors should weigh these challenges carefully against Wipro’s valuation and dividend income potential before considering fresh exposure. The stock’s recent performance suggests caution, especially given its underwhelming returns over one and three-year horizons.

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