Shares of IT companies were sharply lower on June 19, after the US Federal Reserve kept key interest rates unchanged while raising fears over US inflation, and Indian tech companies tracked Wall Street's fall from highs on rising worries of America's possible direct conflict with Iran.
The sharp fall in the IT stocks pushed Nifty IT index down nearly a percent to end the session at 38,664.95.
Also weighing on the sentiment for IT shares were CLSA and Morgan Stanley's cautious notes, stating that US discretionary spending still remains weak. Morgan Stanley downgraded shares of Tech Mahindra to 'underweight' and set a target price of Rs 1,575 per share, but upgraded Wipro to 'equal-weight' with a target price to Rs 265 per share. Morgan Stanley said its assessment of a muted revenue CAGR for IT companies still holds, as deal pipeline is indicating at a weak discretionary spending outlook in US. CLSA too sees demand across most verticals to stay muted.
While announcing the American central bank's decision, Federal Reserve Chair Jerome Powell said that he expects 'meaningful inflation' ahead, as consumers pay more for goods due to the massive tariffs by the Trump administration on imports.
"Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs, because someone has to pay for the tariffs ... between the manufacturer, the exporter, the importer, the retailer…People will be trying not to be the ones who can pick up the cost. Ultimately, the cost of the tariff has to be paid, and some of it will fall on the end consumer," he said during a press conference after the policy decision.
This rising inflation will likely reduce discretionary demand for US consumers, potentially impacting Indian IT companies which derive a major portion of their revenue from US market. No rate cut, followed by lowering of US discretionary demand, may affect these IT firms.
Oracle Financial Services Software (OFFS) shares dropped over 3 percent, while Coforge and Persistent Systems shares fell over 2 percent each. Tech Mahindra and LTI Mindtree shares fell nearly 1.9 percent each, while Mphasis shares dropped over 1 percent.
Infosys and Tata Consultancy Services (TCS) shares were down nearly 1 percent each, while HCL Tech shares closed 0.5 percent lower. Wipro shares however bucked the trend to trade in the green with marginal gains.
Notably, the IT stocks had recorded significant gains earlier on expectations of a rate cut. The Nifty IT index added Rs 1.16 lakh crore in market capitalization by recording gains in eight out of last nine sessions till June 16.
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Although the US Fed kept rates unchanged, it expects to cut rates by half percentage point by the end of this year. However, more policymakers are now expecting to make no rate cuts at all in the near future than before, given the dismal inflation projection.
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