Here’s why Infosys and Wipro shares fell despite good earnings

• Indian tech giants Infosys and Wipro’s shares traded in the red a day after reporting strong performance in the December quarter.
  
• While Infosys fell by over 5%, Wipro plummeted by nearly 7% — both the stocks have recovered since then, but they are still in the red.
  
• Brokerages are unanimously bullish on Infosys, but they’re relatively cautious when it comes to Wipro.
  

Tech giants Infosys and Wipro have both logged in a stellar performance in their third-quarter earnings. The demand for cloud computing and cybersecurity services has boosted both IT companies’ earnings. But despite the strong show, they have seen their share prices fall a day after earnings. While Infosys fell by as over 5%, Wipro dropped by nearly 7%.

Shares of both the companies have recovered since then, but they’re still below their closing price on January 13.



However, the question remains – despite a strong quarter, why are Infosys and Wipro falling?

One of the reasons could be profit booking. Both Infosys and Wipro have surged by over 23% and over 28% respectively since the beginning of December. This could include some of the projected upside in the run-up to the December quarter results.

One of the analysts we spoke to said that the upside in Wipro has already been accounted for in its current share price, suggesting there’s not much room left.

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Infosys, on the other hand, still has some scope to increase from here, given its performance in the third quarter.

Does today’s fall present an opportunity to buy more shares or should you book your profits? We try to decode this.

Brokerages are bullish on Infosys

Infosys delivered a record $7.13 billion deal wins – it’s strongest showing so far. This was also the best December quarter the company had in eight years.


Source: Brokerage reports

“We expect Infosys to be a key beneficiary of multi-year growth in digital technology considering its digital prowess and its ability to provide an end-to-end solution,” stated an ICICI Direct Research reported dated January 14.

“We believe the technology sector will witness multi-year growth in coming years led by traction in digital technologies,” the report further added.

Digital revenues accounted for over half of Infosys’ total revenue in the December quarter, suggesting that the company has already primed itself for strong performances over the next few years.

Cautious on Wipro

Wipro’s strong showing in the December quarter has been seen as a positive by analysts, but some believe it’s still too early to call.

“We believe that it is too early to call out any significant progress on the reversal of Wipro’s growth underperformance although a stronger exit and a demand bounceback should help FY22 growth prospects,” stated a JM Financial report dated January 13.


Source: Brokerage reports

“Wipro has made aggressive changes to organization structure, roles and personnel. The changes are audacious and departures from the incremental changes of the past,” said Kotak Securities.

However, Edelweiss Securities is positive on the stock. “After a disappointing last few years, Wipro finally seems to have gotten back on a growth path with most segments contributing to the spurt,” the research house said, stating that the biggest surprise was the “tremendous improvement” in margins.

SEE ALSO:

Infosys reports record $7.13 billion deal wins — raises revenue guidance after its best December quarter in eight years

Wipro has clocked in its highest margin in over five years