Wipro Ltd.’s consolidated operating margin and profit beat estimates in a quarter where the company absorbed the impact of wage hikes and its core IT services business witnessed subdued growth.
The big hit to IT services came from a slowdown in the U.S. and Europe’s financial sector. “The impact of a slowdown in BFSI is very visible in Wipro,” said Urmil Shah, analyst at IDBI Capital. “We’ve heard that from other IT players also.”
Shah said other businesses of Wipro—IT Products and India State Run Enterprises—kept its margin afloat and helped the company to outperform.
“The IT Products business had a loss of $407 million in the first quarter. That has turned green this quarter at $149 million, an improvement of over $500 million. The loss at the India SRE business, too, has reduced by around $500 million,” Shah said. “That added 70 basis points to the margin. This is what has moved the needle according to me.”
But concerns loom large for Indian IT companies with global headwinds shrouding the future. A deepening economic slowdown in Europe, greater Brexit-related uncertainty and increased trade tensions between the U.S. and China could result in slower sales growth as clients delay spending. Research firm Gartner expects the risk of an economic downturn “high enough” to warrant preparation and planning.
Shares of Wipro closed 0.14 percent higher ahead of the results, compared with the S&P BSE Sensex’s 0.76 percent gain.
Watch the management commentary on Q2 results.
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