The shares of IT stocks declined on November 18, pushing the Nifty IT index down for the third out of four sessions. IT stocks are among the top losers on the market today, along with metal and realty stocks.
The Nifty IT index declined over 1 percent to hit an intraday low of 36,001.90 in the morning of Tuesday. Here are four reasons behind the sharp decline in IT stocks today:
Lower chances of Fed rate cut:
A growing number of Federal Reserve policymakers are now showing willingness to not ease rates further. Market expectations for a 25 basis-point rate cut in December fell to nearly 46 percent from 50 percent earlier this week, CME Group's FedWatch tool showed, as reported by Reuters.
Short-term interest rate futures now show much lower chances of the rate-setting Federal Open Market Committee (FOMC) lowering its borrowing costs on December 10, when the Fed wraps up its last policy meeting of 2025. Earlier last week the contracts indicated a 67 percent likelihood of a cut.
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.
Global worries around possible AI bubble:
Earlier last week, SoftBank sold stake worth $5.8 billion in Nvidia, igniting fears that the frenzy around artificial intelligence may have peaked. Recently, Morgan Stanley and Goldman Sachs CEOs warned that stock markets could be heading to a drawdown, while hedge fund manager Michael Burry, known for shorts on the US housing market ahead of the 2008 crash, bet against Nvidia and Palantir.
Wall Street and global stock markets fell following the rising fears. Nasdaq is down nearly 1 percent to 22,708.07, while South Korea's Kospi declined over 3 percent and China's Shanghai Composite was down over 1 percent.
Indian IT companies while releasing their Q2 results highlighted rising investments in AI-driven technology and tools. Hence, the worries around the AI bubble having reached its peak may have dampened investor sentiment for these stocks.
Investors await US data:
The sharp fall in the IT stocks also comes as investors actively await key US data, which includes the delayed September jobs report. This comes after the end of the US government shutdown last week.
Several of these government reports on key US data were delayed during US federal government shutdown that began in the beginning of October and ended on November 12, marking the longest government shutdown in US history.
IT companies earn a significant share of revenue from the US.
Profit-booking:
The decline in the IT stocks may have also been fuelled by profit-booking after strong gains. The Nifty IT index gained nearly 5 percent while extending gains during the three sessions from November 10 and November 12.
The index has now corrected more than 2 percent since then.
Top IT losers today:
Tech Mahindra shares dropped nearly 2 percent, while LTI Mindtree, Infosys and Coforge shares fell over 1 percent each. Wipro, HCLTech and Mphasis shares meanwhile fell nearly 1 percent each.
Tata Consultancy Services (TCS) and Persistent Systems shares were trading in the red with marginal losses.
Also read: Our LIVE blog on stock market updates
(With inputs from Reuters)
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