IT, pharma stocks slide as rate cut prospects diminish

The blow to IT stocks comes on the back of delay in interest rate cut prospects, said Nishit Master, Portfolio Manager, Axis Securities PMS. "In order to revive IT spending, interest rates should have been lower. We expect related-stocks to remain under pressure in the near-term as it lacks any fundamental trigger. Investors can trim their stake in IT stocks," he said.

AK Prabhakar, Head of Research at IDBI Capital, agreed. He said that US elections, due late in 2024, will be a key monitorable for export-oriented sectors.

"If 10 percent imports or visa rules get changed, we expect these sectors to feel an impact. Hence, market participants will keenly watch how US elections in November unfold," he said.

The stubborn US inflation figures prompted yields and dollar rates to firm up overnight. While the 10-year US treasury yield added 15 basis points (bps) to 4.3 percent, the US dollar index advanced to near three-month high of 104.

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The retail inflation print also provided the US Federal Reserve a reason to postpone interest rate cuts beyond the market's expectations, with traders adjusting their expectations for cuts to July from June.

As per CME Fed-watch tool, expectations for a rate cut in March plunged to 8.5 percent from 16 percent and for May to 34 percent from 52.2 percent a day ago.

Pharma blues

Nifty Pharma slipped 2 percent led by losses in Glenmark, Cipla, and Aurobindo Pharma. Analysts blamed the decline on profit-booking, as the the sector has rallied over 9 percent this year against a 0.5 percent decline in the benchmark Nifty 50.

"Pharma Q3 financials are fairly in-line with Street estimates. While active pharmaceutical ingredient (API) manufacturers may see some impact due to delay in interest rate cut, rest of the pharma is expected to do well," Master said.

Valuation-wise, the pharma pack is trading at 30-35 trailing price-to-earnings (PE) ratio, which is catching up to historical averages, hence investors are booking profits across the board, said Chokkalingam G, Founder of Equinomics Research.

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