The shares of Indian IT companies tumbled in trade on November 14 amid rising expectations of US Federal Reserve keeping its policy repo rate unchanged during its upcoming FOMC meeting scheduled in December.
The sharp fall in the IT stocks pushed the Nifty IT index down around 2 percent to 35,957 in the afternoon trading hours of Friday. The sectoral index has emerged as the top sectoral loser on the market today, extending losses for the second consecutive session.
Fed rate cut hopes fade:
A growing number of Federal Reserve policymakers are now showing willingness to not ease rates further. San Francisco Fed President Mary Daly, who earlier was a staunch supporter of another rate cut in December, on Thursday said that any decision about four weeks ahead of the next policy meeting is "premature".
"I have an open mind, but I have not made a final decision on what I think, and I am looking forward to debating with my colleagues," Daly said during an event in Dublin, Ireland.
Minneapolis Fed President Neel Kashkari, told Bloomberg News on Thursday that he had opposed last month's rate cut because of resilience in the economy, and is on the fence about December.
"We have inflation that is still too high, running at about 3 percent," he said. "Some sectors of the US economy look like they are doing great. Some sectors of the labor market look like they are under pressure,” he added.
"Absent evidence of a notable labor market deterioration, I would be hesitant to ease policy further, especially given the limited information on inflation due to the government shutdown," said Boston Fed President Susan Collins.
Short-term interest rate futures now reflect a 47 percent chance that the rate-setting Federal Open Market Committee (FOMC) will lower borrowing costs on December 10, when the Fed wraps up its last policy meeting of 2025. Earlier this week the contracts indicated a 67 percent likelihood of a cut.
How Fed's rate cut decision impacts Indian IT companies?
A rate cut in the US is expected to increase the discretionary spending limit, which in turn benefits IT companies which derive a significant portion of their revenue from the North American market. Hence, the rising expectations of no rate by the Federal Reserve despite earlier hopes may have affected investor sentiment.
Indian IT stocks accompanied their Wall Street peers, who also tumbled.
"The long-term outlook remains intact: India continues to benefit from global outsourcing trends, rising enterprise spend on AI and cloud, and accelerated digital adoption. While valuations of the major names at 22× forward earnings aren’t bargain hydes, firms with scalable models and sectoral leadership can still offer value. Short-term investors should temper expectations, but over the next 12-18 months this remains a core structural growth theme as long as execution stays disciplined," said Yash Chauhan, Research Analyst, INVasset PMS.
Top IT losers today:
Infosys shares dropped more than 3 percent to trade at Rs 1,491.20 apiece. Mphasis shares were down nearly 2.5 percent, while Coforge and Tech Mahindra shares fell nearly 2 percent each.
Persistent Systems, HCL Tech and Wipro shares fell over 1 percent each, while LTI Mindtree and Tata Consultancy Services (TCS) shares were down around 1 percent each.
Also read: Our LIVE blog on stock market updates
(With inputs from Reuters)
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