Mphasis and Infosys Experience Up to 6% Decline as Nifty IT Index Reacts to Federal Reserve Rate Cut Speculation

Nifty IT Index and Market Movements

Shares of information technology (IT) companies slipped up to 6 percent on the National Stock Exchange (NSE) in Wednesday's intra-day trade as investors booked profits ahead of a crucial Federal Reserve interest rate decision. Mphasis, Persistent Systems, Tech Mahindra, L&T Technology Services (LTTS), Infosys, Wipro, LTIMindtree, Tata Consultancy Services (TCS), Coforge, and HCL Technologies experienced declines ranging from 3 to 6 percent. As of 10:32 AM, the Nifty IT index was down 3 percent compared to an unchanged Nifty 50 index at 25,418.85.

Implications of Federal Reserve Rate Decisions

Analysts at JM Financial Institutional Securities project that the impending Fed rate cut will impact the IT services sector in three significant ways: a) lower cost of equity improving stock multiples; b) a revival of discretionary demand as the economy stabilizes; and c) reduced interest burdens for corporations that could lead to increased operational expenses in IT services.

Outlook for the IT Sector

Despite the recent drop in stock prices, the outlook remains positive for the Nifty IT index. According to Nasscom, the Indian IT market is projected to double to around $500 billion by FY30, with a compound annual growth rate (CAGR) of approximately 12% from FY24 to FY30. This growth is driven by anticipated increases in demand and investments in generative AI. While caution remains regarding potential delays related to the upcoming US election, the overall sentiment in the IT sector is expected to improve, paving the way for resumed discretionary programs by late FY25 or early FY26.