IT shares were trading in green for the second consecutive day on August 12 with Tech Mahindra and HCLTech being among top Nifty gainers. Here are the three key reasons behind the buying seen in IT shares.
US-China trade truce
IT companies, which receive a substantial chunk of their revenue from the US, rose 0.75%, buoyed by the US-China trade truce.
The extension of the truce averts triple-digit duties that slowed down growth in the US, stoked inflation, and delayed corporate discretionary spending, including on technology.
On August 12, Tech Mahindra and HCLTech shares were among top Nifty gainers by rising 1.8% and 1.1%, respectively. This, even as markets were trading in red.
At 11:37 am, the Sensex was down 93.87 points or 0.12 percent at 80,510.21, and the Nifty was down 23.30 points or 0.09 percent at 24,561.75. About 1,944 shares advanced, 1,491 shares declined, and 135 shares were unchanged.
Among other gainers of Nifty IT index are Oracle Financial Services Software, Coforge and Mphasis, which rose 2%, 1.1% and 1%, respectively.
All eyes on US CPI
All eyes will also be on US CPI data later in the day, which is likely to influence the Federal Reserve's rate-cut path. Lower US rates typically boost the appeal of emerging market equities, including India, as yields on US Treasuries fall.
Lower interest rates would mean more discretionary spending, which means Indian IT companies could expect more BFSI spending in US.
Economists polled by Reuters projected that core CPI likely rose 0.3% in July, pushing the annual rate higher to 3%, away from the Fed target of 2%.
Traders are pricing in around an 85% chance of a Fed rate cut next month, as per the CME FedWatch Tool.
Value buying
Indian IT companies have been plagued by weak Q1 results by frontline companies like Tata Consultancy Services and Infosys and value buying could be seen emerging after decent correction in the counters.
On August 12, analysts at BofA Securities (Bank of America’s broking unit) upgraded their call on the Indian IT sector to ‘overweight’ despite the gloomy outlook for the software services giants like Tata Consultancy Services, Infosys, and HCLTech, reported CNBC-TV18.
This is the first sectoral upgrade for IT stocks since the earnings after a nearly 20% fall in the index this year so far.
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