Wipro's shares have declied between 9-18 percent within 3-9 months post a buyback record date, according to historical data by Ambit Capital. This has happened in three out of the last four instances that the company has carried out a buyback of shares. The correction, according to Ambit, took place as growth decelerated.

Bengaluru-based Wipro announced its fifth share buyback on April 27 along with its March quarter earnings. The buyback, worth Rs 12,000 crore, is the highest in the last four instances. Last week, the company announced that June 16 will be the record date for the share buyback.

Out of the previous four instances, three of them - 2016, 2017, and 2019 saw the stock correct anywhere between 9-18 percent. Ambit expects a similar scenario to play out post the June 16 record date as Wipro's fundamentals outweigh the buyback.

As on date, shares of Wipro have risen 9 percent since the announcement of the buyback, despite March quarter results missing street expectations.

According to Ambit, Wipro's current valuations imply a US Dollar revenue Compounded Annual Growth rate of 8.1 percent over a period of financial year 2023-2033, as compared to a 3.4 percent CAGR over financial year 2015-2020. As Wipro has a higher exposure to consulting, it is at a higher risk from a pullback in discretionary spending.

65 percent of Wipro's revenue comes from BFSI, consumer and tech verticals, all of which are areas of demand caution. "We believe without a sustainable growth turnaround, margin improvement would be temporary," Ambit wrote in its note.

Source: Ambit Capital Note

Among buy recommendations with the largecap IT space, Ambit prefers HCLTech and Tech Mahindra, while among sell recommendations, it prefers Infosys over Wipro. Interestingly, BoFA Securities just had a tactical downgrade on HCLTech, saying sector-wide demand worries can pause the company's re-rating prospects.

The Nifty IT index had its worst day in two months on Tuesday after their global peer EPAM cut its guidance for the second quarter of 2023, as well as the full year.

Shares of Wipro are currently trading 0.6 percent higher at Rs 402.50. The stock is 11 percent away from its buyback price of Rs 445.

(Edited by : Hormaz Fatakia)

First Published:Jun 7, 2023 12:03 PM IST