Information technology (IT) stocks posted their steepest drop in over six weeks on Wednesday. Market players said the IT sector’s poor performance during previous rate-cut cycles by the US Federal Reserve (Fed), coupled with Accenture’s decision to defer staff promotions, dampened investor sentiment. Experts also attributed the fall to profit-taking after a sharp 25 per cent rise in the past three months.
Accenture fell nearly 5 percent on Thursday following news that the company has informed employees that most promotions will take place in June, rather than the usual December, due to a challenging consulting environment.
The National Stock Exchange’s (NSE) Nifty IT index closed 3.1 per cent lower at 42,089 points on Wednesday, its biggest single-day drop since August 5. Mphasis was the biggest faller at 5.6 per cent, followed by Tata Consultancy Services at 3.5 per cent. L&T Technology Services, Persistent Systems, Infosys and HCLTech also fell over 3 per cent each.
“IT stocks are facing profit-taking after the sharp rally as layoffs, economic slowdown and depreciation of the US dollar are contributing to the pessimistic view. Adding to this is the negative sentiment from Accenture, which has delayed promotions of most of its staff by six months. The recent wave of layoffs in the technology industry and job cuts at companies such as Apple, Cisco, IBM and Intel have sent shockwaves through the IT sector,” said Vinod Nair, Research Director at Geojit Financial Services.
The correction came ahead of the outcome of the Fed’s two-day monetary policy meeting and the central bank’s guidance on future interest rates.
According to experts, the expected rate cut is likely to weaken the dollar, which will impact revenue growth of Indian IT players in the near term.
IT stocks have rallied over the past three months even as demand remains weak. The Nifty IT index has seen significant gains since June 2024 and is up nearly 30 per cent since then. The sharp rise has raised valuation concerns.
Experts believe demand will only recover three to six months after the first US rate cut.
“Unlike 2001, 2007 and 2019, IT spending this time around has already been very limited, and the prolonged spending decline we have seen was not seen even in 2008 after the Lehman bankruptcy. Coupled with good cyclical demand with large hardware changes (AI servers), we expect demand for services to pick up around three to six months after the first rate cut,” said Ravi Menon, IT services analyst at Macquarie, in a report.
The brokerage, in a note, highlighted the poor performance of the IT sector during the previous three Fed rate-cut cycles.
The sell-off in technology stocks dragged the benchmark indices lower. The S&P BSE Sensex and NSE Nifty 50 ended the session down 0.2 per cent despite posting gains in the first half. The Sensex dipped 0.5 per cent from the intraday high to close at 82,948, while the Nifty 50 fell 0.4 per cent to 25,378.
“Except for banking and financial sectors, all others ended in the red. Investors were cautious awaiting the outcome of the Federal Reserve’s monetary policy meeting. A 25 basis point (bp) rate cut is already priced in and could lead to profit-taking in the market. However, a 50 bp rate cut by the Fed could bring some cheer to the market,” said Siddhartha Khemka, Head – Research & Wealth Management, Motilal Oswal Financial Services.
China and the Bank of England will also announce interest rate decisions on Thursday.
First published: September 18, 2024 | 21:05 IS
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.