Nifty IT Slumps as Fed Rate Hike Hits Tech Sectors
Indian IT stocks faced renewed selling pressure as the Federal Reserve signaled further hikes, with the Nifty IT index dropping nearly 1% and major players like TCS and HCL Tech falling in sync.
The Nifty IT index fell 0.96% to close at 28,805.40 on Thursday, marking the weakest performance among Nifty sectoral baskets. Eight of the ten constituent stocks traded in the red, with HCL Technologies leading the decline at 1.4%. Tata Consultancy Services dropped 1%, while Wipro, Tech Mahindra, Mphasis, OFS, and Coforge each shed approximately 1% in value. This session highlighted a broader trend of weakness in the tech sector, as investors reacted to shifting global monetary policies.
The sell-off followed the US Federal Reserve's decision to raise key lending rates by 0.25 basis points to a range of 3.75-4.00%. The central bank’s policy statement indicated that further increases in borrowing costs are anticipated in the coming months. According to data reported by GN stocks/ipo, new policy projections show that 16 of 18 policymakers expect at least one additional quarter-point hike by the end of the year. This hawkish stance has introduced uncertainty for IT firms heavily dependent on US corporate budgets.
Market Reaction to Monetary Policy Shifts
Sunny Agrawal, Deputy Vice President of Fundamental Research at SBI Securities, explained that rising US interest rates create pressure on IT budgets. He noted that higher borrowing costs may lead US corporations to slash IT spending, directly impacting Indian service providers. However, Agrawal observed that the immediate market reaction was muted, suggesting that much of the negative impact is already priced in. He pointed out that the sector has already undergone a sharp correction, with the index down 6.21% over the past month.
Despite recent volatility, Agrawal expressed a bullish view on select companies positioned ahead in the AI race, specifically naming Coforge and Persistent Systems. He argued that for Tier 1 IT companies, the growth outlook for FY27 remains stable, with guidance penciled in at 3-5% growth. This outlook factors in global challenges, including the deflationary impact of AI on traditional service models. The sector’s recent strength in July, which saw a 17% rise, provided a buffer against the current downturn.
Technical Levels and Sector Outlook
Vipin Kumar, AVP Research at Globe Capital Market, analyzed the broader chart structure, noting signs of base formation within a seven-month range of 25,700 to 32,134. The index has experienced profit-taking from resistance levels near 32,000, currently sitting at the 50% Fibonacci retracement of its previous up-move. Kumar warned that a decisive close below 28,800 could drag prices toward the 28,000 level in the near term.
However, he assessed the probability of a fresh downswing below the congestion range as low. Instead, he expects stabilization in the 28,000–28,800 zone. This technical view aligns with the fundamental perspective that while short-term pressures persist due to Fed policy, the long-term correction phase may be nearing its end. Investors are advised to monitor these key support levels as the sector navigates the ongoing macroeconomic headwinds.
