US-Iran war: Infosys, Persistent Systems to OFSS — IT stocks fall on fears of subsea cable, internet disruptions

Nifty IT dropped by 1.5% on Monday, March 30, following Iran’s threats against undersea internet cables, which experts believe pose a significant risk to India’s digital connectivity, particularly beyond the Strait of Hormuz.

Rising tensions in West Asia are heightening worries about the safety of undersea internet cables that support a significant share of India’s global data transfer. The Strait of Hormuz—an essential shipping channel for energy—is also a vital pathway for digital connectivity, managing approximately one-third of India’s westward internet traffic.

On Monday, on the backdrop of these news, shares of Oracle Financial Services Software, LTIMindtree, MphasiS, and Coforge fell by 1-3% on the Nifty IT index, along with HCL Technologies, Infosys, Persistent Systems, Tech Mahindra, and Wipro. TCS was the sole stock that rose in the index.

Analysts and reports indicate that Iran and its affiliated groups have made threats to target undersea internet cables in the Red Sea and the Gulf of Hormuz, which collectively handle a significant volume of traffic between Europe, Asia, and the Middle East.

As per reports, approximately 17% of global internet traffic is managed by systems in the Red Sea, while the Gulf-Hormuz area is home to crucial cables such as AAE-1, FALCON, Gulf Bridge, and Tata’s TGN-Gulf that are vital for India’s international connectivity and cloud infrastructure.

As per reports, the Red Sea corridor is vital for India's internet data as it contains numerous essential subsea cables, such as Google's Blue-Raman and Bharti Airtel's Sea-Me-We 6. Interruptions in this corridor can cause considerable slowdowns in data traffic, impacting India as well as other areas linked to these networks.

If even a small number of these cables are severed, repair vessels may face delays entering a conflict zone for weeks, resulting in prolonged congestion and rerouting instead of a straightforward failover, according to experts.

However, some analysts think that an immediate "internet shutdown" is unlikely; instead, this situation suggests increased volatility for Indian IT stocks, heightened margin and operational risks, and a medium-term focus on capital expenditures in networks and data centers, rather than an outright failure of the business, according to reports.

Technical View

According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, Nifty IT has exhibited relative strength over the past couple of weeks, ending in the green for the second consecutive week despite broad-based market weakness. Even today, several stocks from the index have rebounded from lower levels, reinforcing this relative outperformance.

From a technical standpoint, Bhosale believes that the index faces immediate resistance around the 30,000 mark, which coincides with the 20 DEMA. A decisive breakout above this level could trigger broad-based buying. On the downside, 28,000 continues to act as a strong long-term support.

“Stocks like TCS, Tech Mahindra, and HCLTech remain key outperformers and are likely to lead the upmove once Nifty IT sustains above the 30,000 mark,” said Bhosale.

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.