Information technology (IT) stocks remained under pressure in Wednesday's (February 14) trade following negative cues from the US markets last night. The Nifty IT index was also the top losing sectoral index, declining 2%. Nine out of 10 stocks on the index were trading below the flat line. The IT index has risen 6.25% so far this year.
At around 2:50 pm, HCL Tech shares were trading 0.29% lower, Persistent Systems fell 1.15%, L&T Technology Services shares were down 5%. TCS, Coforge, Mphasis, Tech Mahindra, Infosys, and LTIMindtree shares were trading between 1-3% lower. Wipro was the only stock in the 10-pack Nifty IT index to trade in the green.
"The Nifty IT index was under pressure as stronger-than-expected US inflation data further dented sentiment around Federal Reserve interest rate cuts. The recent rally in the markets were expecting interest rate cuts by May 2024 but now it looks like those expectations are ruled-out," said Prashanth Tapse of Mehta Equities.
Currently, the US Fed is holding rates at its highest level in over two decades, and aiming inflation to target 2%. With this scenario by keeping interest rates high for long it will reduce the chances of a US economic soft landing, Tapse said.
On the technical charts, the analyst said the Nifty IT index has support near 37150 and any close below this, will see more selling, while any close above 38200 could see new highs.
"Despite short-term volatility, on higher interest rates environment and US economic worries, optimism prevails in the sectors owing to emerging tech opportunities like Gen AI, ML, and cloud, which promise long-term growth prospects for Indian IT firms," said Vinod TP, Research Analyst at Geojit Financial Services.
Vaibhav Kaushik, Research Analyst at GCL Broking believes this is a buying opportunity for investors specifically in large cap stocks. He listed TCS and HCL Technologies among his top picks.
"Discouraging US data, with inflation cooling less than expected, suggests that relief from rate cuts may be further delayed. However, clients in the US and Europe are showing tentative signs of revival for the IT sector, albeit not emphatically," said Sonam Srivastava, Founder and Fund Manager at PMS.
Srivastava anticipates IT stock recovery to be around a quarter away, with next quarter's numbers likely to be modest. "Close monitoring of deal pipelines is essential. As recovery ensues, undervalued larger IT names may see more appreciation initially compared to midcaps," she said.
On February 13, the US Labor Department data showed a 0.3% increase in consumer price index from December to January, faster than 0.2% rise a month earlier.
The January 2024 price rise in the US was 3.1% compared to a year earlier. The Federal Reserve's target is 2%.
The higher inflationary readings announced in the US, potentially deferring the rate cut cycle further, triggered a rush to book profits in the IT stocks.
The US 10-year bond yield gained by 2.6 percent and US Dollar index rose nearly 0.6 percent. The Dow Jones Industrial Average fell 1.11 percent and S&P 500 fell 1.29 percent.
Analysts say the rise in US Bond Yield and US Dollar Index is a bad sign for emerging markets including India, and it will have 2-3 trading sessions where sentiment will be negative.
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