LTIMindtree, Wipro, other Nifty IT stocks tumble up to 4% as hawkish Fed dampens demand hopes

The Nifty IT index has surged over 8 percent over the last month.

Technology stocks were among the biggest losers in the morning session on December 19, as the commentary coming from the US Federal Reserve turned more hawkish than previously expected.

At 9.45 am, the Nifty IT recovered some of its early losses after falling 2.4 percent, but was still lower by 1.17 percent at the 44,995 mark. The top losers on the index were LTIMindtree, Wipro and L&T Technology Services, which were down by 2-4 percent respectively.

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In conversation with Moneycontrol, Kranthi Bathini, Equity Market Strategist at WealthMills noted that most of the disappointment was coming in from the US Federal Reserve's dot plot, which foresaw interest rate cuts to the tune of 50 basis points for 2025, which was shallower than expected. Experts were foreseeing 3-4 cuts next year.

Since the domestic information technology sector is heavily reliant on services exports, a higher interest rate regime in the US sends bond yields spiking and strengthens the dollar, increasing the cost of IT services for US clients and potentially dampening demand.

Also, tighter monetary policy could slow economic growth in key markets like the US, therefore reducing discretionary IT spending by businesses. Together, this mutes the sentiment for Indian firms' IT services.

While it looks like there will be a shallow easing cycle for 2025, the picture on the cards might have to be redrawn once President-elect Donald Trump assumes office in January, 2025. If the threats of the tariffs comes to fruition, the inflation narrative in the US might see a drastic change, surging sharply, as the cost of goods will skyrocket.

As a result, the Federal Reserve Chair Jerome Powell might have to change his monetary policy outlook. Already, the Federal Reserve is projecting higher inflation for 2025, raising their forecast for the year to 2.5 percent, up from the 2.1 percent estimate in September.

This would further weigh on the IT sector, that had been seeing something of a turnaround lately, with experts bumping up their target prices on these firms in hopes of a solid demand revival. The Nifty IT index has surged over 8 percent over the last month, scaling almost 30 percent in the past six months of trade.

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