Infosys, Wipro, other IT shares rise for 4th day due to ADR surge, five other reasons

The shares of Indian IT companies jumped in trade on December 2, pushing the Nifty IT index into the green for the fourth consecutive session. Rising hopes for further rate cuts by the Federal Reserve and soaring Infosys ADR were among the six key factors behind the sharp rise.

The Nifty IT index gained nearly 2 percent to 39,442.75, as seen at 1.12 pm. The index has now gained more than 1,380 points (around 4 percent) during its four-session gaining streak so far.

 

Infosys ADR surge:

Infosys Ltd’s American Depository Receipt (ADR) surged sharply to fresh record highs on Friday, with the company clarifying that it is not aware of any material event which led to the sudden spike. The ADRs hit a 52-week high on aggressive short-covering, opening nearly 40 percent higher before paring gains.

Traders told Moneycontrol that the sharp move was driven by a short squeeze, after a major lender recalled a large chunk of stock lent out in the market. The sudden recall forced traders with short positions to rush into the open market to cover their exposure, bidding up prices sharply in a thinly traded counter.

"It looks like there is some buying interest after the surge in ADRs. But there doesn't seem to be much substance to it as fundamentals and export competitiveness have not changed. Therefore, we expect things to return to normalcy," says UR Bhat, co-founder of Alphaniti Fintech.

Soft US inflation data:

US consumer prices rose less than expected in the year ending in November. US consumer prices rose 2.7 percent year-on-year in November, slowing from a 3 percent increase in the 12 months through September.

The moderation in the in the US Consumer Price Index, reported by the Labor Department's Bureau of Labor Statistics on Thursday, has reignited hopes for more rate cuts by the US Federal Reserve in the near future.

Higher hopes for further Fed rate cuts:

Along with the softer US inflation data, positive commentary by the American central bank’s management also boosted hopes for more rate cuts. Federal Reserve Governor Christopher Waller on Wednesday said that the American central bank still has room to cut interest rates amid rising job market weakness.

"I still think we're probably, you know, maybe we're 50 to 100 basis points off of neutral," which means the Fed still has room to cut interest rates if it needs to, Waller said at the Yale School of Management CEO Summit in New York.

A rate cut in the US will likely increase the discretionary spending capacity, which will likely help the IT companies which derive a major portion of their revenue from the American market.

Strong Accenture results:

Accenture released better-than-expected first-quarter results on Thursday, driven by artificial intelligence (AI) solutions that help clients integrate the technology to enhance productivity.