This IT Stock Has Been Downgraded By A Brokerage Firm: Here's Why

Indices in trade on June 17, 2021 ended lower after the US Federal Reserve in its FOMC outcome advanced the timeline of rate hike to 2023. Among Nifty sectoral indices, all but 2 indices saw weakness in the range of 0.94-2.32 percent. IT sector has been the outlier in trade today, with gains of 0.57 percent on the Nifty IT pack, led by gains in IT scrips namely, Mphasis, L&T Infotech, Coforge, Infosys and TCS.

This IT Stock Has Been Downgraded By A Brokerage Firm: Here's Why

Now coming to the IT stock that has been downgraded by Kotak Securities, the scrip ended higher by 0.62 percent at Rs. 558.7 per share on the NSE. At day's high the stock hit a price of Rs. 561.5, which is close to its 52-week high price of Rs. 564.

Yes the downgraded stock is none other than Wipro and brokerage firm Kotak Securities has downgraded the scrip to 'Reduce' from the earlier 'Add', the reason being sharp run in the stock price of Wipro. Over a 1-year period, the stock has provided a return of 156.55%, while YTD returns have been close to 45% as against Sensex absolute returns of 56% in a 1-year period and 9.57% on an YTD basis.

Further as per a CNBC TV18 report, in the last 3 months, the stock price of Wipro has surged by 29 percent and owing to that it trades at a premium in comparison to Infosys and at an only slight discount to TCS. Now even as analysts, investors bet on this turnaround story, Kotak Securities says that even turnaround stories require safety in multiples and Wipro looks highly expensive at 23.5 times FY23 EPS so this is 1-year forward P/E multiples.

Why is D-Street Bullish on Wipro?

This is because the IT company has given hopes of reaching peer matching growth on an organic basis by FY23 and exceeding them by FY24. But in the view of Kotak Securities the company will see an organic revenue growth of 9.9% over 3 years, but it shall be lower than that of TCS and Infosys, so in a way the steep valuations are unjustified.

The factors pushing the stock price of Wipro higher are:

-High success rate with respect to large deals

-flawless execution

- Success in case of large accounts/Clientele.

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