Nifty IT index falls over 2.5% to reach new 2024 low amid Fed rate cut fading

Indian IT stocks faced persistent selling pressure in today's trading session. Starting with the opening bell, the stocks experienced downward momentum, resulting in the Nifty IT index plummeting by 2.57% to reach an intraday low of 33,576 points, hitting the lowest level in CY24.

The sharp decline in stocks reflects a broader market trend of selling pressure, exacerbated by escalating tensions in the Middle East.

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Apart from this, rate-sensitive IT stocks took more beating following the release of robust U.S. retail data on Monday. Retail sales in the U.S. surged by 0.7% month-over-month in March 2024, surpassing forecasts of 0.3%, which bolstered the belief that the Federal Reserve might not rush to implement interest rate cuts this year.

According to Trading Economics data, eight out of thirteen categories recorded increases, indicating that consumers continued to spend at a faster pace than anticipated despite persistent inflationary pressures.

Given the strong retail data and elevated inflation print for March, analysts anticipate that the Federal Reserve may delay rate cuts until July or September instead of June.

In addition, the mixed results from IT major Tata Consultancy Services have also dented investors' sentiment towards IT stocks. The IT major on Friday reported a smaller-than-expected fourth-quarter revenue as cautious spending by clients amid macroeconomic uncertainty remains an overhang.

Investors are eagerly awaiting results from other industry leaders like Infosys and Wipro later this week to gain insights into the FY25 outlook.

Analysts had previously forecasted modest revenue growth for large-cap Indian IT companies in the fourth quarter of fiscal year 2024. This projection reflects ongoing subdued demand trends due to weak discretionary spending and cautious client behavior amid a volatile global macroeconomic landscape.

At the time of reporting, all 10 constituents of the index were trading in the red. Coforge experienced the most significant decline, with a drop of 3.3%. Following closely behind were Infosys, Mphasis, LTIMindtree, Wipro, and HCL Technologies, all showing cuts exceeding 2%.

Looking at the benchmark indices, both the Nifty 50 and Sensex extended their decline for the third consecutive session on Tuesday. The Nifty 50 dropped by 0.86% to reach an intraday low of 22,079, while the Sensex slumped by 0.97% to hit a day's low of 72,685.

Commenting on the market performance, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "Two issues—one economic and the other geopolitical—will continue to weigh on markets in the near term."

"The economic factor is the rising US bond yields (10-year yield is above 4.6%), which reduces the prospects of rate cuts by the Fed this year. High bond yields are negative for risky assets like equity and will accelerate FII selling in emerging markets like India," he added.

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