Wipro Shares Downgraded by CLSA Six Months After 'Double Upgrade'

CLSA, a prominent brokerage firm, has downgraded its rating for Wipro Ltd., a leading technology services provider, from "outperform" to "hold" just six months after issuing a "double upgrade" for the stock. The downgrade comes despite the brokerage maintaining its price target at ₹303, which closely aligns with Wipro’s closing price of ₹300.6 on Wednesday.

The decision to downgrade follows Wipro’s recent stock performance, which has seen an increase of 3% over the past month and 14% since the "double upgrade" was issued on July 1 of last year. CLSA attributed the change in its stance to the strong rally in Wipro's share price, which has reduced the upside potential at current levels.

The brokerage has expressed concerns about Wipro’s near-term growth prospects. For the quarter ending December 31, CLSA expects Wipro’s Constant Currency (CC) revenue growth to remain flat sequentially, even though the company’s guidance points to growth at the upper end of its forecast. A lack of substantial sequential growth, according to CLSA, may reinforce the perception that Wipro continues to lag behind its large-cap IT peers in terms of performance.

Wipro’s earnings have faced downgrades of 1% for the fiscal year 2024, yet the stock has witnessed a re-rating, with its price-to-earnings (P/E) ratio increasing from 19.7x to 24.4x. The company's shares have gained 30% over the past year, positioning Wipro as one of the stronger performers in the large-cap IT segment. This sharp rise in share price suggests that much of the market's optimism about future growth may already be priced in, limiting further upside unless the company demonstrates improved operational performance and revenue growth.

According to CLSA, the next phase of Wipro’s re-rating will require the company to deliver growth comparable to that of its peers in the large-cap IT sector. However, the brokerage’s note highlighted that signs of this convergence remain elusive. The firm emphasized that Wipro must address execution challenges and strengthen its client wins and order book if it hopes to close the growth gap with its competitors.

Wipro is yet to announce the date for its December quarter results, which will likely provide investors and analysts with more clarity on its performance and outlook.

Market sentiment toward Wipro remains mixed. Out of the 45 analysts tracking the stock, 25 currently recommend a "sell," nine have a "buy" rating, and the remaining 11 suggest holding. The cautious outlook from analysts reflects concerns about Wipro's ability to sustain momentum amid an increasingly competitive industry landscape.

On Wednesday, Wipro shares closed at ₹300.6, down 0.4% from the previous trading session. Despite this small dip, the stock's overall performance in 2024 has been robust, with nearly 30% gains over the year. The broader IT sector has faced headwinds due to macroeconomic uncertainties, making Wipro’s 2024 performance notable. However, sustaining such gains will require stronger quarterly results and evidence of consistent growth in key business verticals.

Additionally, Wipro’s peers in the IT services space, such as Infosys and TCS, have also been closely monitored by investors, as their performance often sets benchmarks for the sector. CLSA's report suggests that Wipro's valuation gap compared to these peers is justified unless the company demonstrates substantial improvements in its quarterly metrics. The brokerage cautioned that further stock appreciation would be challenging without clear evidence of stronger revenue growth, improved client retention, and higher margins.

The coming quarters will be crucial for Wipro as it navigates an evolving demand environment. Analysts will be paying close attention to its digital transformation initiatives, cost optimization efforts, and the execution of its global strategy. Meanwhile, shareholders remain watchful, hoping that upcoming financial disclosures will offer positive surprises and justify holding or increasing their positions.

With competition heating up across the IT services sector, Wipro’s ability to close deals, grow its client base, and expand its market share will play a key role in determining its trajectory in 2025 and beyond.