Infy, other IT stocks fall up to 3%. What's spooking investors?
Shares of Indian IT companies, including heavyweights Infosys and HCLTech, fell up to 3% on Thursday, emerging as the top losers on the Sensex and Nifty. Investor sentiment was weighed down by rising US inflation, expectations of prolonged higher interest rates by the Federal Reserve, and concerns over global demand.
The Nifty IT index crashed nearly 3% to 27,519 before paring some losses today. LTI Mindtree shares plunged nearly 3%, while Infosys and HCL Tech shares dropped nearly 2% each, as seen at 11.55 am. Mphasis, Tata Consultancy Services (TCS) and OFSS shares fell around 1% each, while Wipro, Persistent Systems, Tech Mahindra and Coforge shares were trading with marginal losses.
US inflation soars, triggers Fed rate hike expectations
US consumer inflation increased at its fastest pace in three years in May, boosted by surging prices for energy products amid the Middle East conflict, according to a CPI report released on Wednesday.
The Consumer Price Index (CPI) increased 4.2% in the 12 months ending in May, marking the largest gain since April 2023, the Labor Department's Bureau of Labor Statistics said on Wednesday. The CPI advanced 3.8% year-on-year in April. Prices increased 0.5% on a monthly basis after climbing 0.6% in April. Traders are pricing in a more than 70% chance of a US rate hike by December, according to the CME FedWatch tool, as quoted by Reuters, as inflation rises.
Also read: US inflation hits three-year high at 4.2% in May amid high energy prices
The Indian IT companies derive a major portion of their revenue from the US economy. Rise in inflation in the country, as well as the Fed’s rate hikes, are considered to reduce discretionary spending in the US, which in turn can impact the US-based Indian IT companies.
AI worries loom
IT stocks have been under pressure in recent months. Earlier this year, the sector witnessed a sharp selloff after breakthroughs by AI startups fuelled concerns about potential disruption to the traditional IT services business model. While intermittent buying emerged on hopes that fears of an AI-led shake-up were overdone, the recovery proved short-lived. The weakness has persisted, with several IT stocks declining by as much as 11% over the past month.
Also read: Why Oracle shares crashed 10% in extended trading despite earnings beat
While doomsday prophets continue to debate the future of IT companies following fresh AI advancements, Nuvama, in its note, has highlighted that the IT sector is setting up for a powerful comeback, not a collapse after the brutal AI-driven selloff.
“We see no existential threat from Gen-AI,” the brokerage writes, arguing that enterprises will still need a “system integrator” to customise plug-and-play AI and software tools for their highly complex, brownfield technology stacks and to take ownership when “the system fails at 2 am.”
Also read: Wipro's Rs 15,000 crore buyback opens today; analysts expect 7-8% returns for retail investors. Here's how
The Nifty IT index crashed nearly 3% to 27,519 before paring some losses today. LTI Mindtree shares plunged nearly 3%, while Infosys and HCL Tech shares dropped nearly 2% each, as seen at 11.55 am. Mphasis, Tata Consultancy Services (TCS) and OFSS shares fell around 1% each, while Wipro, Persistent Systems, Tech Mahindra and Coforge shares were trading with marginal losses.
US consumer inflation increased at its fastest pace in three years in May, boosted by surging prices for energy products amid the Middle East conflict, according to a CPI report released on Wednesday.
The Consumer Price Index (CPI) increased 4.2% in the 12 months ending in May, marking the largest gain since April 2023, the Labor Department's Bureau of Labor Statistics said on Wednesday. The CPI advanced 3.8% year-on-year in April. Prices increased 0.5% on a monthly basis after climbing 0.6% in April. Traders are pricing in a more than 70% chance of a US rate hike by December, according to the CME FedWatch tool, as quoted by Reuters, as inflation rises.
Also read: US inflation hits three-year high at 4.2% in May amid high energy prices
The Indian IT companies derive a major portion of their revenue from the US economy. Rise in inflation in the country, as well as the Fed’s rate hikes, are considered to reduce discretionary spending in the US, which in turn can impact the US-based Indian IT companies.
AI worries loom
IT stocks have been under pressure in recent months. Earlier this year, the sector witnessed a sharp selloff after breakthroughs by AI startups fuelled concerns about potential disruption to the traditional IT services business model. While intermittent buying emerged on hopes that fears of an AI-led shake-up were overdone, the recovery proved short-lived. The weakness has persisted, with several IT stocks declining by as much as 11% over the past month.
Also read: Why Oracle shares crashed 10% in extended trading despite earnings beat
While doomsday prophets continue to debate the future of IT companies following fresh AI advancements, Nuvama, in its note, has highlighted that the IT sector is setting up for a powerful comeback, not a collapse after the brutal AI-driven selloff.
“We see no existential threat from Gen-AI,” the brokerage writes, arguing that enterprises will still need a “system integrator” to customise plug-and-play AI and software tools for their highly complex, brownfield technology stacks and to take ownership when “the system fails at 2 am.”
Also read: Wipro's Rs 15,000 crore buyback opens today; analysts expect 7-8% returns for retail investors. Here's how
Next Story