Infosys, Wipro, TCS to HCL Technologies: IT stocks fall on escalating US-Iran war buzz

Stock market today: Following a sell-off in US software stocks on Thursday and rising US-Iran war buzz, Indian IT stocks saw selling pressure in early-morning deals on Friday. Indian IT majors — Infosys, Wipro, HCL Technologies, Firstsource Solutions, TCS, etc., witnessed sharp selling within a few minutes of the Opening Bell. By 9:30 AM on Friday, the Nifty IT index had crashed by around 1.50%.

According to stock market experts, IT stocks are falling for two main reasons: a heavy sell-off in US software stocks and an escalation in US-Iran tensions. They said that IT stocks took a heavy beating during the US stock market session on Thursday. Infosys ADR, Wipro ADR, Globant, EPAM, Cognizant, and Accenture stocks witnessed heavy selling. They said that the surge in US and Indian IT stocks was mainly due to the heavy military buildup along the Iran border, which has fueled the US-Iran war buzz.

Why are Indian IT stocks falling today?

Pointing towards the combination of reasons that are dragging Indian IT stocks, Ponmudi R, CEO at Enrich Money, believes the sell-off in the Indian IT stocks is driven by escalating US–Iran war buzz, a hawkish U.S. Fed outlook, a spike in India VIX to 13.46 (up over 10%), and sustained FII pressure, with DIIs also turning net sellers in the previous session.

"While underlying macro fundamentals remain resilient, near-term sentiment has turned fragile and risk-averse amid mixed global cues and the absence of immediate positive triggers,” said Ponmudi R of Enrich Money.

USD vs INR

Pointing towards the soaring crude oil prices to hit Indian US Dollar (USD) reserves, Anuj Gupta, a SEBI-registered market expert, said, “The US-Iran war buzz has fueled the crude oil prices. As India meets around 855 of its oil demand through imports, its dollar reserves are expected to be affected by this geopolitical tension in the Middle East. In the wake of low USD reserves, the Indian Rupee is expected to come under selling pressure.”

Anuj Gupta said that Indian IT companies are mainly service-oriented and receive payments in USD. Hence, a long-term rise in the USD against the Indian Rupee is not a good sign for the Indian IT industry.

Following the AI disruption, IT stocks have been under pressure since last week. However, some experts see this dip as an opportunity for long-term investors who believe in bottom-fishing.

Pointing to the hope for Indian IT stocks despite strong selling in the US and the Indian IT and tech majors, Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said that the sell-off in AI stocks in US markets was expected, but its timing and extent were unknown.

"For the Indian market, this correction in AI stocks is a positive because last year’s global rally was primarily an AI trade in which India, an AI laggard, couldn’t participate. So the unwinding of the AI trade, if it persists, is a positive from the Indian perspective. However, what is rattling the Indian market now is the massive sell-off in IT stocks, which is the second-largest profit pool of India Inc," Dr VK Vijayakumar added.

IT stocks to buy today

Advising investors to initiate accumulation in the top Indian IT majors, Mahesh M Ojha, VP — Research at KC Securities, said, “Top five Indian IT stocks — TCS, Wipro, Infosys, HCL Technologies, and Tech Mahindra — are trading at attractive valuations. These IT stocks are currently trading at around 5% dividend yield, which is quite attractive. Their risk-reward ratio suggests returns up to 30%."

US-Iran war

Awaiting President Donald Trump's orders, a massive military buildup, including warships, fighter jets and refuelling aircraft, is hovering in West Asia. The target would be Iran if the ongoing negotiations over Tehran’s nuclear programme fail to produce an agreement.

According to CNN and CBS, the US military is ready to launch strikes against Iran as early as this weekend, but Trump has not yet made a final decision. Russia and Iran, too, have conducted naval exercises in the Sea of Oman to deter any "unilateral action" in the region.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.