Nifty IT index dips over 2% as hot US inflation data raises concerns over rate cuts
Indian IT stocks faced a downturn in today's trading session due to higher-than-anticipated US consumer inflation data released yesterday, raising concerns about the Federal Reserve's ability to implement multiple rate cuts this year.
Indian IT stocks faced a downturn in today's trading session due to higher-than-anticipated US consumer inflation data released yesterday, raising concerns about the Federal Reserve's ability to implement multiple rate cuts this year, which had been a crucial aspect of the bullish sentiment in the equity market.
Inflation in the US softened to 3.1% on a yearly basis in January from 3.4% in December, the US Bureau of Labor Statistics (BLS) reported on Tuesday. However, the reading came in above the market expectation of 2.9%. The core inflation rate remained unchanged at 3.9%, contrary to expectations of a slowdown to 3.7%.
Currently, the Federal Reserve is maintaining interest rates at their highest level in over two decades, aiming to gradually restore inflation to the targeted 2% rate over the long term. Since March 2022, the US central bank has increased its policy rate by 525 basis points to the current range of 5.25% to 5.50%.
"A major catalyst driving the rally in global equity markets has been expectations of a rate cut by the Fed. The Fed had indicated possibly three rate cuts in 2024 and markets had discounted up to five rate cuts. This was on expectations that inflation in the US will continue to trend down. This expectation has received a jolt from the US CPI inflation numbers rising year on year to 3.1% against expectation of 2.9%. This means that the Fed will certainly not cut rates in March and the number of rate cuts in 2024 also will be lower," said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
As concerns over potential Federal Reserve interest rate cuts heightened due to the significant inflation figures, major equity markets globally concluded Tuesday's session in the red. The three major US indices, S&P 500, Dow Jones, and Nasdaq all closed lower.
Following this trend, Indian stocks also commenced Wednesday's session with losses, with the frontline indices Nifty and Sensex each experiencing a 0.70% decline as of 10:00 a.m. Indian IT stocks, heavily reliant on the US market for revenue, were similarly trading in negative territory.
All 10 constituents of the index are currently trading in red, with L&T Technology Services being the top loser with a drop of 4.1%, followed by MphasiS, Infosys, Wipro, Tech Mahindra, LTIMindtree, HCL Technologies, Coforge, Persistent Systems, and Tata Consultancy Services, all trading with declines between 1.3% and 3.5%.
The Nifty IT is trading with a cut of 1.67% at 37,569 points. In the early trade, the index hit a low of 37,344 points, marking a drop of 2.25%.
IT stocks had been trending upward since December last year, fueled by expectations of a first-rate cut from the Fed in March this year, which now appears unlikely to materialise in the immediate future.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
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