The Nifty IT index slumped more than 2% to hit a fresh 52-week low of 26,425.85 on Tuesday, as concerns over persistent inflation fuelled expectations that the US Federal Reserve could raise interest rates at least three times this year.
Among individual stocks, LTI Mindtree fell around 3%, while Wipro, Infosys and Tata Consultancy Services (TCS) declined over 2% each. HCL Technologies slipped around 2%, while Mphasis, Tech Mahindra, Coforge and Persistent Systems traded with marginal losses.
Traders are now pricing in three US Federal Reserve rate cuts this year, with the CME FedWatch Tool indicating about a 64% probability of a September cut. Earlier this month, however, a hawkish tone from the Fed had fuelled expectations that rates could remain higher for longer, raising concerns over weaker discretionary spending and weighing on IT stocks.
The US Federal Reserve held interest rates unchanged after its June policy meet, but a higher number of policymakers expected a rate hike in borrowing costs later this year amid growing concerns about inflation lodged above the US central bank's 2% target. In what was the first Fed FOMC meet under Chairman Kevin Warsh’s tenure, the American central bank acknowledged that inflation was “elevated relative to the Committee’s 2% goal”, which was attributed in part to “supply shocks that have driven price increase in certain sectors, including energy.”
Also read: Infosys, TCS, Wipro, other IT stocks fall after Fed's hawkish tone. What's ahead?
How Fed’s rate hikes impact IT stocks?
IT stocks derive a major portion of their revenue from the North American market. Rate hikes in US or inflation spikes in the country may impact discretionary spending in the country, which in turn can affect these companies.
Notably, the IT stocks have seen sharp bouts of volatility this year so far. In the beginning of the year, new AI innovations spooked investors about the possibility of disruption in India’s much touted IT sector. The raging war in the Middle East further dampened sentiment on the overall market, with IT stocks being no exception, despite brief support from the falling rupee.
Recently, these stocks saw a new bout of selloff after Accenture’s softer outlook retriggered worries that enterprises remain cautious on discretionary spending related to IT consulting and digital transformation projects, even as investments in artificial intelligence and cybersecurity continue.
All eyes on Q1 results
Tata Consultancy Services (TCS), India's largest IT services company, will announce its results for the April-June quarter of FY27 on July 9, effectively kickstarting the Q1 earnings season for the IT pack.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, the management commentary of the IT companies will be more important than the results themselves this season.
Also read: TCS to kickstart Q1 earnings on July 9, sets record date for potential dividend
