Indian information technology firm Wipro (
) reported results overnight. Although the company beat analysts'
estimates, the stock traded poorly in Mumbai trading.
[caption id="attachment_57801" align="alignright" width="300"
caption="Wipro's campus in Kochin InfoPark, India"]
In its quarterly report, Wipro, India's third largest IT firm,
consolidated earnings grew at 6.57%
and 17.85% on year-on-year basis to Rs 17.16 billion.
While these numbers are substantially better than the Rs 16.33
billion that analysts had expected, these numbers in and of
themselves do not paint the whole picture.
Shares in the Indian IT outfit dropped substantially in India as
the result of
. The company has predicted growth to be over a wide range, from
0.5-3.0%. Growth at the low-end of this range would be rather
underwhelming for an emerging market stock.
An analyst at Religare Capital, Rumit Dugar, indicated that
Wipro's guidance "suggests that volume outlook is uncertain, and
that he sees "limited room for EPS upgrades on the stock."
This unclear guidance could be a result of uncertainty in
developed markets, with the outlook from Europe remaining
Traders were largely in agreement with analyst sentiment; Wipro
dropped roughly 8% in Friday trading.
If the developed world were to return to normalized growth over
the next few months, it stands to reason that a rising tide will
lift all ships. However, were such growth not to materialize, it
becomes harder to make a case for going long Wipro here.
With its near-term outlook mediocre, and given that this
relatively low-beta stock was up 15% this month before its earnings
flop, it's not unreasonable to expect Wipro to enter a new
downtrend over the short-term. With a forward price-to-earnings
ratio larger than competitor Infosys (
), which did not drop precipitously after it reported earnings,
traders should not be surprised to see Wipro slump over the next
few trading sessions.