Back in July, I questioned the upbeat outlookoffered by management of Indian IT services outsourcer Wipro (NYSE: WIT), especially considering the then-cautious tone of competitors Infosys (Nasdaq: INFY) and Tata Consultancy . But based on Wipro's recently announced quarterly results, it appears that my concerns were unwarranted.

Revenue for the company's fiscal-2010 second quarter rose 6% year over year to $1.44 billion. Sequentially, the gain was just shy of 10%. The IT Services business -- by far the company's largest segment -- saw margins expand both sequentially and annually. Combine those fine results with double-digit operating margin expansion in Wipro's other segments, and it's no surprise that net income shot up 21% against the year-ago period, handily beating analyst estimates.

Owing to a slightly higher share count, a 20% gain in earnings per share was just shy of net income growth.

What powered these impressive results? Commenting on the general environment, management cited "more stability in volumes and pricing." From a bottom-line perspective, increased client demand has likely led to better operating leverage, as fixed costs decline as a percentage of revenue. Of course, Wipro's not the only one benefiting as companies spend their way to savings: Indian IT peer Infosys recently reported better margins, and globetrotting behemoth Accenture (NYSE: ACN) managed a small EPS gainin its most recently completed quarter.

For Wipro, additional highlights include 37 new-client wins, the most in seven quarters. The company inked a five-year deal with integrated oil giant BP (NYSE: BP), and it's set to provide application management services for Nokia Siemens Networks, a joint venture between Nokia (NYSE: NOK) and Siemens (NYSE: SI).

With consulting services representing only 2% of net revenue, I'd say that Wipro is, for the moment, in the industry sweet spot, since companies are most focused on outsourcing routine operations. However, if corporate managers do regain an appetite for larger, more sophisticated projects, it will be interesting to see whether Wipro's margin growth can keep pace with the more consulting-heavy operations of Infosys, Accenture, and IBM (NYSE: IBM).

Looking to the current quarter, management sees IT Services revenue picking up to the $1.09 billion-$1.11 billion range, ahead of the $1.04 billion earned in the second quarter.

In terms of valuation, Wipro's net income performance has gone a long way toward justifying its 31.2 forward P/E. But based on forward P/E and PEG ratios, the stock's still expensive compared to competitors' shares. For a truly stark comparison, consider that Wipro's fiscal 2009 price-to-free cash flow ratio (P/FCF) is north of 50, versus a TTM P/FCF ratio of 34.5 for Infosys and 11.2 for IBM. In other words, Wipro's got a lot to prove.

Should future results come in below expectations, you won't need a consultant to figure out why shares are sinking.

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This article was originally published as Wipro Wakes Upon Fool.com

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