Nifty IT falls nearly 4% in 4 sessions; Infosys, Tech Mahindra and TCS lead declines

Even as the resilient overall market sentiment has led frontline indices to new highs, it is the IT pack which is seeing correction for some days now. Since the close of September 17, the Nifty IT index has tumbled 3.75 per cent considering day's low hit today.

This is even as broad-based buying is seen across all other sectors.

Of the 10 stocks constituting the index, Infosys, Tech Mahindra and TCS led the decline with fall of nearly 1 per cent and above. While 4 others traded in the red, and L&T Technology Services and Mphasis traded with mild gains.

At the last count, Nifty IT recouped some of its day's losses and was down 0.67 per cent.

Atul Parakh, CEO of Bigul attributes the fall to several reasons added that the sector experienced a significant drop in today, with the Nifty IT Index falling 0.85%. This decline is primarily attributed to concerns over the sector's historical performance during US Federal Reserve rate cut cycles.

Additionally, Accenture's decision to delay staff promotions has exacerbated negative sentiment. Notable firms such as Mphasis, TCS, and Infosys had considerable declines, which were indicative of wider industry concerns over demand and valuation, he added.

Siddhesh Mehta, Research Analyst, SAMCO Securities said, "The recent decline in IT stocks can be attributed to several key factors, despite the U.S. Federal Reserve’s 50 basis points rate cut last week. Typically, rate cuts support growth sectors like IT by lowering borrowing costs and stimulating investment. However, IT stocks had already slumped, with the Nifty IT index falling over 3% on Wednesday before the announcement. With the U.S. being a key market, fears of a recession or economic slowdown in the U.S. create uncertainty around future revenue growth and client spending on technology services for Indian IT companies."

Mehta added that weak guidance from major companies, reduced global IT spending, and inflationary pressures have also strained their profit margins. While the rate cut could provide some relief, the underlying challenges have cast doubts on the sector’s short-term growth leading to heightened volatility. Despite the short-term volatility, many IT companies have strong balance sheets and a history of navigating economic downturns effectively.

Further lowering the picture are recent layoffs at major titans like Apple, Cisco, IBM, and Intel. According to analysts, the dollar could weaken due to the Fed rate cut, which might have an immediate effect on the revenue growth of Indian IT businesses. This confluence of factors has led to profit-booking following the sector's recent 25% surge over the past quarter, added  Parakh.