Following a stellar performance in June with a double-digit gain, the Nifty IT index kicked off July on a strong footing as investor expectations grew that the U.S. Federal Reserve would cut interest rates in September.
Amid this optimism, the Nifty IT index jumped 2.6% to 37,093 points in today’s intraday trade, reaching nearly a 4-month high. All 10 constituents of the index are trading in positive territory, with Persistent Systems leading the pack with a gain of 5.6%.
Other IT majors such as MphasiS, Tech Mahindra, LTIMindtree, L&T Technology Services, TCS, Wipro Infosys, Coforge, and HCL Tech are also trading with gains ranging between 2.1% and 3.5%.
On Friday, market bets increased on hopes that the Federal Reserve would cut interest rates by September and again in December after the release of the Personal Consumption Expenditure (PCE) index, which showed that inflation in May slowed to its lowest annual rate in more than three years.
The U.S. PCE index indicated that inflation did not rise at all from April to May, aligning with expectations and pointing to softening price pressures. This bolstered the case for the Fed to lower borrowing costs this year. Core PCE prices increased by only 0.1% from the previous month, the smallest increase in six months, while the annual rate eased to 2.6%, the lowest since early 2021.
San Francisco Federal Reserve Bank President Mary Daly, a member of the 2024 Federal Open Market Committee, remarked that the latest inflation data was “good news that policy is working.”
Following the PCE report on Friday, the probability of a rate cut by September rose to 66% from 64%. The odds of a rate cut by November increased to 78% from 76% and to 95% from 94% by December.
The Fed has postponed rate cuts and revised its rate cut projections as inflation continued to trend above the central bank’s target range in 2024. Between December 2023 and February 2024, Indian IT stocks surged in anticipation of the Fed’s first rate cut in March 2024. However, due to persistent inflationary pressures, the Fed maintained its rates during that month and continued this stance in subsequent meetings.
With renewed optimism for a Fed rate cut, IT stocks have experienced increased buying activity. The overall positive sentiment and rebound in foreign portfolio investor (FPI) inflows have also contributed to IT stocks trading at higher levels.
Despite major sectoral indices hitting fresh all-time highs at least once in 2024, the Nifty IT index has not recorded this milestone. The last time the index hit an all-time high was in January 2022 at 39,446 points. In February, the index came close to this level at 38,559 but could not surpass it.
Impressively, the Nifty IT index ended a 3-month losing streak in June with a gain of nearly 12%, marking its best monthly performance since August 2021, when it achieved a gain of 13.42%.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
