Wipro announced its results yesterday evening and they look like this:

Wipro Q1 – 2017 Q4 – 2016 Q1 – 2016 % change Q-Q % change Y-Y
Revenues 13,697.6 13,741.7 12,370.60 -0.32% 10.73%
EBIT 2,804.7 3,050.7 2,931.8 -8.06% -4.34%
EBIT margin 20.48% 22.20% 23.70% -1.72 Bpt -3.22Bpt
Net Profits 2,059 2,257.5 2,207.4 -8.79% -6.72%

 

Wipro results are like the last nail in the coffin of IT sector. The only positive thing was that revenues had grown by 11% on year on year basis. The managements forecast of only 0.1% – 1% growth in its revenues for this financial year had confirmed that we will see negative or no growth in the IT sector for this financial year. The worst part is that even revenues grew, management was not able to translate any profits from it, resulting into none of the value drivers working towards growing intrinsic value of the business.

Is this the opportunity to get into IT sector?

Wipro, Infosys, TCS and Mindtree are out with their first quarter results and all the four businesses are today trading in our intrinsic value spectrum for the 2018 financial year after almost three and half years. We wait for this kind of opportunities to come when all the other investors are dumping stocks and we are picking them up for our portfolio.

Second level thinking is one of the most important things for successful investing. By definition, successful investor should earn an above average returns. However, if investor have only first level of thinking (e.g. Company A is a great business therefore we should buy a stock) will have difficulty drawing any variant perceptions or insights from information readily available to everyone that would allow them to outperform the average investor (i.e. market). The second level thinker thinks, “Company A is a good business but everyone thinks it’s a great business – could the stock be overpriced as a result?” fortunately, investors can learn second level thinking by being intellectually curious and open to considering all possible outcomes.

The weightage of IT sector in NIFTY 50 is of 16% and so far the results that we reported on our blog in aggregate comes to this:

 

IT Sector Q1 – 2017 Q4 – 2016 Q1 – 2016 % change Q-Q % change Y-Y
Revenues 61,865.2 60,833 54,126.10 1.70% 14.30%
EBIT 16,092.8 16,552.3 14,828.10 -2.78% 8.53%
EBIT margin 26.01% 27.21% 27.40% -1.20 Bpt -1.39 Bpt
Net Profits 12,131.50 12,479.50 11,189.70 -2.79% 8.42%

 

Open up your mind and start your second level thinking and look for the best one to add into your portfolio that you missed three – four years’ time back. Will appreciate if you can share the name of the business that you think is attractive for entry level and why.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.