Wipro has a growth problem and Morgan Stanley isn't buying the comeback

Wipro's efforts to revive growth are yet to convince Morgan Stanley. The global brokerage has maintained its Underweight rating on the IT services major and retained a target price of Rs 192, signalling continued caution over the company's ability to accelerate revenue growth in an increasingly competitive market.

The assessment comes as India's fourth-largest IT services company navigates a challenging operating environment marked by evolving client spending patterns, AI-led disruption and growing pricing pressure across the sector. While Morgan Stanley noted that Wipro did not witness any fresh deterioration in performance during the first quarter of FY27, the brokerage remains unconvinced that a meaningful turnaround is underway.

Growth remains the central concern

According to Morgan Stanley, Wipro continues to face portfolio-related and client-specific challenges that are limiting its near-term growth prospects.

The brokerage expects the company to remain behind industry peers in quarter-on-quarter revenue growth, highlighting concerns that extend beyond broader market weakness.

Key concerns flagged by Morgan Stanley include:

• Continued revenue growth challenges linked to client-specific issues
• Expectations that Wipro will lag peers in sequential revenue growth
• Ongoing competitive pressure across the IT services sector
• Margin risks associated with upcoming wage hikes
• Uncertainty surrounding the pace and impact of AI adoption

While several large Indian IT firms have spent the past year repositioning their businesses around artificial intelligence opportunities, Morgan Stanley suggested that the benefits may take longer to materialise than many investors expect.

Margins face pressure from rising costs

One area attracting particular scrutiny is profitability.

Wipro management has reiterated its medium-term operating margin guidance of 17% to 17.5%, but Morgan Stanley warned that wage revisions could place additional pressure on earnings in the coming quarters.

The brokerage indicated that rising employee costs may temporarily push margins below the guided range, creating another hurdle for a company already facing slower growth.

The warning reflects a broader challenge confronting the IT services industry, where firms must balance employee retention and compensation demands while maintaining profitability in a fiercely competitive market.

For Wipro, that balancing act may prove particularly important as competitors continue to pursue new deals and AI-related opportunities.

Competition is reshaping the sector

Morgan Stanley believes revenue pressure across the IT services industry cannot be explained solely by AI-driven productivity gains being passed on to customers.

Instead, the brokerage pointed to broader competitive dynamics and pricing pressure as significant factors affecting growth.

As enterprises reassess technology spending, service providers are increasingly being asked to demonstrate productivity improvements upfront when bidding for contracts. This trend is changing the economics of technology services engagements and placing greater pressure on providers to deliver measurable outcomes earlier in project lifecycles.

The brokerage noted that distinctions between organic and inorganic growth are becoming less clear as strategic deals evolve and client expectations shift.

AI opportunity comes with disruption risks

Artificial intelligence remains a major growth theme for the industry, but Morgan Stanley cautioned that adoption is unlikely to follow a straight path.

According to the brokerage, many organisations are simultaneously reducing spending on traditional services while investing in AI-led initiatives. This creates a transition period where established revenue streams may decline before newer AI-related offerings begin contributing meaningfully to growth.

The report suggested that AI adoption could create temporary revenue disruptions across the sector as companies adjust their service portfolios and operating models.

For Wipro, which is seeking to strengthen its position in next-generation technology services, the challenge lies in managing this transition without sacrificing near-term growth momentum.

Why investors are watching closely

Morgan Stanley's continued caution reflects concerns that Wipro's recovery story remains incomplete.

The brokerage's position is based on several factors:

• Revenue growth continues to trail industry leaders
• Margin expansion faces pressure from wage increases
• Competitive intensity remains elevated
• AI-related revenue opportunities are still evolving
• Client spending patterns remain uneven

With the stock trading near the brokerage's target range, Morgan Stanley appears to be signalling that meaningful evidence of sustained growth acceleration will be required before sentiment improves.

The road ahead

Wipro enters FY27 facing a technology landscape that is changing faster than at any point in recent years. Artificial intelligence is creating new opportunities for service providers, but it is also altering how clients buy, deploy and measure technology investments.

For now, Morgan Stanley's view suggests investors should focus less on turnaround narratives and more on execution. Revenue growth, margin resilience and the company's ability to convert AI-related demand into meaningful business outcomes are likely to remain the key indicators of progress.

Until those metrics show consistent improvement, the brokerage believes Wipro's recovery story remains a work in progress rather than a completed turnaround.