Diwali Rally Masks Retail Pain as Smallcaps Extend Year-Long Slide

The Nifty 50 has rallied ahead of Diwali, driven by strong buying in heavyweight sectors such as financial services, FMCG, telecom, and energy. However, for retail investors who bet on high growth small- and midcap stocks, the gains haven't translated into portfolio gains due to margin pressures, tight liquidity, and weaker earnings visibility. Smallcaps have declined 8% from highs, while largecaps have benefited from turnaround in foreign flows. Analysts say smallcaps remain sensitive to interest rate movements and macro swings, prompting investors to stay cautious.

Wipro Ltd (WIT) reported steady growth in IT services revenue and unveiled new AI platforms during its Q2 2026 earnings call, despite facing challenges in operating margins and sector-specific headwinds. The company reported an adjusted operating margin of 17.2%, an improvement of 0.4% compared to the same period last year, according to a GuruFocus report.

Positive Points
Wipro Ltd's IT services revenue reached $12.6 billion, showing a sequential growth of 0.3% in constant currency. The company's adjusted operating margin improved to 17.2%, a 0.4% increase compared to the same period last year. Wipro Ltd closed $1.47 billion in total contract value this quarter, signing 30 large deals, including two mega deals in healthcare and BFSI. The company is witnessing strong momentum in Europe, with strategic multi-year partnerships driving modernization and efficiency. Wipro Ltd introduced 'Wipro Intelligence', a unified suite of AI platforms and solutions, enhancing their consulting approach and delivering measurable outcomes for clients.

Negative Points
Despite the positive points, revenue declined 2.6% year on year in constant currency terms. Operating margins contracted by 60 basis points quarter on quarter, impacted by a one-off charge due to a client bankruptcy. The America's 1 region saw a decline of 2% sequentially and 5% year on year. The consumer, energy, and manufacturing sectors are impacted by tariff uncertainties, leading to supply chain re-evaluations. The healthcare sector, despite being a strong performer, is undergoing structural changes, posing challenges.

Q & A Highlights
During the earnings call, several questions were addressed:
- Aparna Iyer, CFO, discussed the deal-to-revenue conversion in the BFSI sector, highlighting the company's confidence in sustaining growth with Europe and APAC leading the way.
- Iyer also addressed margins, noting that while large deals may initially impact margins, operational improvements and currency benefits have been positive.
- The CEO, Srinivas Pallia, discussed client responses to renewals, noting that clients are seeking cost optimization and AI adoption.

Conclusion
Wipro Ltd's Q2 2026 earnings reflect a mix of positive and challenging elements. The company's strategic wins and AI innovations are promising, but margin pressures and sector-specific headwinds remain significant concerns. Investors should closely monitor the company's progress in executing deals and converting the robust pipeline into bookings, which will translate into future revenues.