Coforge, LTIMindtree: Why did IT stocks decline in trade?

Stock market today, IT stocks today: Information technology (IT) stocks were in deep red in Wednesday's trade (February 14). The Nifty IT index was down over 1 per cent with all 10 stocks on the index trading below the flat line. 

At around 1:10 p.m., L&T Technology Services shares were down over 5 per cent, Coforge and Mphasis were trading over 3 per cent lower, whereas Tech Mahindra, Infosys, and LTIMindtree shares traded over 2 per cent lower. Further, TCS, Wipro, and Persistent Systems shares fell over 1 per cent and HCL Tech was down 0.87 per cent.

"The Indian IT index declined due to higher-than-expected US inflation, raising concerns about delayed interest rate cuts and impacting client spending," said Vinod TP, Research analyst, Geojit Financial Services.

The IT pack nosedived tracking weakness from global stocks; all three major US stock indexes fell more than 1 per cent each. The Dow Jones Industrial Average posted its biggest daily percentage drop in almost 11 months, while the tech-heavy index Nasdaq ended 1.80 per cent lower.

The downfall in the international market came after data showed US inflation slowed less than expected in January. U.S. consumer prices increased more than expected amid rises in the costs of shelter and healthcare, but the pick-up in inflation likely does not change expectations that the Federal Reserve will start cutting interest rates in the first half of this year.

The consumer price index (CPI) increased 0.3 per cent last month after gaining 0.2 per cent in December, the Labour Department said on Tuesday. In the 12 months through January, the CPI increased by 3.1 per cent. That followed a 3.4 per cent advance in December.

Economists polled by Reuters had forecast the CPI gaining 0.2 per cent on the month and rising 2.9 per cent year-on-year. The annual increase in consumer prices has moderated from a peak of 9.1 per cent in June 2022.

Why does US inflation data matter? 

The US Consumer Price Index report pushed back market expectations that any interest rate cuts by the Federal Reserve were imminent.

"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 Wright Research PMS.

Outlook

Srivastava anticipates IT stocks to recover. The expert expects next quarter's numbers to be modest.

"While we're optimistic about Indian IT stocks amid clearer indications of rate cuts, we're holding off on increasing allocation for now... Close monitoring of deal pipelines is essential. As recovery ensues, undervalued, larger IT names may see more appreciation initially compared to midcaps," said Srivastava.

Along similar lines Geojit Financial Services'  Vinod TP said, "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."

Catch the latest stock market updates here. For all other news related to business, politics, tech and auto, visit Zeebiz.com.

DISCLAIMER: The views and investment tips expressed by investment experts on zeebiz.com are their own and not those of the website or its management. zeebiz.com advises users to check with certified experts before taking any investment decisions.