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Shares of IT companies, including Infosys, Tata Consultancy Services (TCS), HCL Technologies and other tech majors, rallied on Thursday, lifting the Nifty IT index nearly 4% after a four-session slump that had dragged the sectoral gauge to a fresh 52-week low.
Coforge shares surged around 5%, while Infosys, Mphasis, HCL Tech and Persistent Systems gained about 4% each. LTI Mindtree and TCS advanced nearly 3% apiece, while Tech Mahindra and Oracle Financial Services rose around 2%. Wipro added nearly 1% in early trade.
The Nifty IT index climbed nearly 940 points, or about 4%, to 26,710. The rebound follows a nearly 7% decline over the previous four sessions, during which the index had fallen to a fresh 52-week low of 25,699 on Wednesday.
Why are IT stocks rising today?
US Federal Reserve Chair Kevin Warsh said inflation expectations and risks have eased in recent weeks. He added that he would stick firmly to the US central bank's 2% inflation target and disappoint anyone expecting a looser monetary policy stance.
"If people thought this central bank was going to be comfortable with an inflation objective above 2%, they would be disappointed," Warsh told a European Central Bank panel in Sintra, Portugal. "We have been an independent central bank for a long time. We are going to be an independent central bank at this moment, and you will see no changes on that."
His comments come as global investors remain concerned about the possibility of multiple rate hikes by the US central bank following its hawkish tone at the last policy meeting. In the first FOMC meeting under Warsh's tenure, the Fed acknowledged that inflation remained "elevated relative to the Committee's 2% goal", attributing it in part to supply shocks that had driven price increases in certain sectors, including energy.
IT companies derive a significant portion of their revenue from the North American market. Rate hikes or a spike in inflation in the US can weigh on discretionary spending, which, in turn, may affect the sector's growth prospects.
Today's rally in IT stocks came after Warsh's comments offered some relief to investors. Traders are now pricing in roughly a 64% probability of a rate hike in September, according to the CME FedWatch Tool.
Nomura expects IT firms to see 'anaemic' growth in FY27
While Nomura believes the long-term addressable market for Indian IT companies will continue to expand, it expects near-term growth to remain anaemic. In its latest note, the brokerage said Indian IT services firms, especially large-cap players, are facing a "perfect storm of two key headwinds".
The first is macro uncertainty stemming from geopolitical tensions in the Middle East and the outlook for interest rates, particularly in the US, which is keeping client spending subdued at the margin.
Nomura also noted that when clients' technology spending is not growing, competition among IT services companies intensifies, with the economic gains from AI being passed on to customers. With firms such as Accenture indicating that the impact of the conflict on growth could persist in the near term, the brokerage expects FY27 to remain another subdued year for the sector.
The international brokerage expects the upcoming earnings season to be subdued for IT companies, with most large-cap players likely to report weak quarterly growth. It expects Wipro to post the weakest performance, with revenue declining 1.3%, while Tech Mahindra is projected to lead the pack with 1% growth.
"We expect mid-caps, in general, to continue posting stronger growth than large caps. We do not expect any changes to the annual guidance from Infosys and HCL Tech, and expect Wipro to guide for -1% to +1% revenue growth in Q2 FY27," it added.
Nomura has lowered its revenue growth estimates by 100-200 basis points for FY27 and FY28.
(With inputs from agencies)
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