On December 12, 2024, Indian IT stocks defied the negative market trend, with the Nifty IT index surging past the 46,000 mark for the first time, largely fueled by in-line US inflation data. This positive movement was driven by renewed expectations that the Federal Reserve might announce a rate cut at its next meeting on December 18.
Why the US Fed Rate Cut is Crucial for Indian IT
The anticipation of a 25 basis points (bps) rate cut by the Federal Reserve on December 18 provided a major boost to India's information technology sector, which heavily relies on the US market. A rate cut would likely lead to a weaker dollar, making Indian IT exports more competitive globally and supporting the profit margins of companies earning a significant share of their revenue from the United States.
Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, explained, "Positive cues come from the US, where CPI inflation aligned with expectations, fueling bets of a 25 bps rate cut by the Federal Reserve on December 18."
Nifty IT Index Breaks 46,000 Barrier
The Nifty IT index rose 1.43% in the trading session on December 12, closing at a 52-week high of 46,002.65. This marked a milestone for the sector, driven by strong performances from key IT stocks.
All 10 components of the Nifty IT index showed positive movement, with some companies seeing up to 4% gains. Major contributors to this rally were Coforge, Tech Mahindra, and LTIMindtree, among others.
The rally in Indian IT stocks came just a day after the Nasdaq set a new record by closing above 20,000. The strength of the global Nasdaq rally has had a direct impact on domestic markets, especially the IT sector, which is deeply integrated with the global technology ecosystem.
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| Indian IT stocks defy market trends as Nifty IT index reaches a 52-week high of 46,000, driven by positive cues from US inflation data and Fed rate cut hopes |
Sector Performance: Key IT Stock Highlights
The strength of the Indian IT stocks was evident in their strong performance on December 12:
- Coforge led the gains, reaching a new 52-week high of ₹9,351 on the NSE, up by nearly 4%. By mid-morning, the stock was trading at ₹9,286.80, reflecting a 3.23% rise.
- Tech Mahindra also saw a remarkable surge, hitting a 52-week high of ₹1,807.70 per share, jumping 2.54%.
- LTIMindtree and Persistent Systems saw their stocks hit fresh 52-week highs too, rising 2.05% and 2.34%, respectively.
- Tata Consultancy Services (TCS) recovered from two consecutive days of decline and posted a 0.96% rise, trading at ₹4,470 per share.
Despite the broader market being under pressure, with indices like Sensex and Nifty showing losses, the Nifty IT index was the only index trading in green around 10:30 AM, showcasing the resilience of the tech sector.
Global Cues: Nasdaq's Impact on Indian IT Stocks
The positive global cues played a major role in the rally of Indian IT stocks. The Nasdaq, which set a new record by closing above 20,000 on the previous day, signaled that the global tech rally is intact. This supported investor confidence in Indian IT stocks, given that these companies earn a substantial portion of their revenue from the US and other Western markets.
According to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, "Even though the US CPI inflation in November at 2.7% has come a bit above the October numbers, this was on expected lines and, therefore, the expectation of a 25 bps rate cut by the Fed is intact."
This optimism surrounding the US Federal Reserve's decision is expected to continue providing a positive tailwind for Indian IT stocks.
Broader Market Performance and IT's Outperformance
While the IT sector rallied, the broader market was under pressure. The Sensex declined by 52.06 points, settling at 81,474.08, while the Nifty dropped by 34 points, ending at 24,607.80. However, despite the negative sentiment across the market, the Nifty IT index managed to defy the trend, leading the way with strong gains.
The Impact of US Inflation Data
The recent US inflation data, which was aligned with expectations, was key to the market's positive reaction. US CPI inflation for November 2024 came in at 2.7%, slightly above the 2.6% figure for October, but still within expected ranges. This kept the markets optimistic that the Federal Reserve would continue its dovish stance, further bolstering expectations of a rate cut next week.
The impact of these global developments was particularly pronounced on the Indian IT sector, as a weaker dollar resulting from a rate cut would enhance the earnings potential of IT companies in India, most of which are heavily dependent on US-based clients.
Market Outlook for IT Stocks
The positive outlook for Indian IT stocks remains strong as long as global cues remain favorable. The expected rate cut by the US Fed continues to be a significant factor that could fuel further growth in Indian IT companies, especially those that derive substantial revenue from the US market.
While the broad market remains cautious due to various economic factors, the IT sector is poised to outperform, given its global exposure and the potential benefits of a weaker dollar.
In conclusion, the rally in the Nifty IT index on December 12, 2024, is a testament to the sector's resilience in the face of a broader market slump, and it highlights how favorable global economic conditions, such as a potential US rate cut, can significantly impact India's IT stocks.
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