Why Wipro's Share Price is Falling: Unraveling the Key Factors Behind the Decline

The Indian IT sector, once a beacon of economic growth, has encountered significant challenges in recent years. From the impacts of the Covid-19 pandemic to fluctuations in the US banking system, the industry has weathered numerous storms. Despite a promising recovery in the previous year, the sector faces renewed headwinds, affecting even major players like Wipro.

Early 2024: A Promising Start Turns Sour

Wipro began 2024 on a high note, achieving its 52-week peak on February 19, 2024. However, this optimism was short-lived. As of today, Wipro's share price has dropped by 4.6% in 2024 alone, prompting investors and analysts to question the underlying causes of this decline.

1- Change in Management

Management transitions can introduce uncertainty within a company, unsettling investors who prioritize stability and a clear strategic vision. In April 2024, Wipro experienced a significant leadership change when CEO and Managing Director Thierry Delaporte departed. Srinivas Pallia, who previously managed Wipro’s Americas 1 region, stepped into the role.

Such transitions can lead to a period of adjustment, during which investors might doubt the company’s ability to execute its strategic plans effectively. The resultant uncertainty often leads to a decline in share price as market confidence wavers.

2 -Muted Quarterly Results

The fiscal year 2024 was particularly challenging for the IT sector. Wipro reported a 6.8% year-over-year decline in consolidated net profit for the quarter ending March 2024. This drop, from Rs 30.9 billion in the previous year to Rs 28.8 billion, was driven by global uncertainties that weakened demand and reduced revenues.

Revenues from operations fell by 4.2% year-over-year, from Rs 231.9 billion to Rs 222.1 billion. The most significant declines were seen in the banking, financial services, and insurance (BFSI) sector (down 8.9%), communications (down 20%), and manufacturing (down 11.5%). Conversely, the healthcare sector saw a modest growth of 1.3%.

Overall, Wipro’s net profit for FY24 stood at Rs 111.1 billion, a 2.3% decrease from Rs 113.7 billion in FY23. The company’s total revenues also slipped marginally from Rs 904.9 billion in FY23 to Rs 897.6 billion in FY24.

The Road Ahead for Wipro

Wipro’s outlook remains cautious as it navigates the persistent challenges facing the IT sector. The new CEO’s guidance reflects a conservative approach, predicting flat to slightly declining revenue growth in the next quarter. This forecast underscores the weak demand from key markets in the US and Europe, exacerbated by rising interest rates.

The broader IT industry is wary of continued slowdowns in discretionary spending and awaits clearer signs of economic recovery. High interest rates, potential recessions, and weak consumer sentiment in developed economies present significant hurdles. Additionally, the rise of advanced AI technologies is reshaping the industry landscape, requiring IT firms to adapt rapidly.

Despite recent deal wins, converting these into actual revenue remains crucial. While falling subcontracting costs and improved utilization have boosted margins, wage increases and higher travel expenses have offset some of these gains.

Performance and Market Sentiment

Over the past five days, Wipro’s share price has decreased by 1.7%. Year-to-date, the share price has fallen by 4.6%, though it had increased by 13.8% over the last year. The stock reached its 52-week high of Rs 546.1 on February 19, 2024, and its 52-week low of Rs 375 on October 26, 2023.

About Wipro

Founded in 1945 as Western India Vegetables Product Limited, Wipro initially manufactured consumer care products. In 1980, the company pivoted to the IT services sector. Effective from April 1, 2012, Wipro demerged its non-IT divisions into Wipro Enterprises, focusing solely on IT services.

Today, Wipro operates across three primary segments: IT Services, IT Products, and India State Run Enterprise, maintaining its status as a leading global IT, consulting, and business process services company.

In Conclusion, Wipro faces a challenging path ahead as it grapples with leadership changes, subdued quarterly results, and a cautious market outlook. However, this period of turbulence also presents an opportunity for Wipro to reassess its business models, invest in emerging technologies, and diversify its revenue streams. With a proactive approach and a clear strategic vision, Wipro aims to navigate these challenges and emerge stronger in the evolving IT landscape.

Stay tuned for further updates as Wipro continues to adapt and respond to these industry dynamics.