IT Shares Surge: Shares of Indian IT companies rallied on December 2, pushing the Nifty IT index into positive territory for the fourth straight session. Growing expectations of further interest rate cuts
by the US Federal Reserve and a sharp surge in Infosys ADRs were among the six key drivers behind the move.
The Nifty IT index rose 1.35 per cent to 39,214.90 as of 10:10 am. The index has now climbed over 1,150 points, or more than 3 per cent, over the past four sessions.
Infosys ADR surge
Infosys Ltd’s American Depository Receipts (ADRs) jumped sharply to fresh record highs on Friday, even as the company clarified that it was not aware of any material event behind the sudden spike. The ADRs hit a 52-week high amid aggressive short-covering, opening nearly 40 per cent higher before paring some gains.
Traders told Moneycontrol that the sharp rally was triggered by a short squeeze after a major lender recalled a large quantity of stock lent in the market. The sudden recall forced traders holding short positions to rush to cover their exposure, sharply driving up prices in a relatively illiquid counter.
“It looks like there is some buying interest after the surge in ADRs. But there doesn’t seem to be much substance to it as fundamentals and export competitiveness have not changed. Therefore, we expect things to return to normalcy,” said UR Bhat, co-founder of Alphaniti Fintech.
Soft US inflation data
US consumer price inflation eased more than expected in November. Consumer prices rose 2.7 per cent year-on-year, slowing from a 3 per cent increase recorded in the 12 months through September.
The moderation in the US Consumer Price Index, reported by the Labour Department’s Bureau of Labour Statistics on Thursday, has revived hopes of additional rate cuts by the Federal Reserve in the near term.
Rising hopes of further Fed rate cuts
Alongside softer inflation data, positive commentary from US central bank officials also lifted expectations of further easing. Federal Reserve Governor Christopher Waller said on Wednesday that the Fed still has room to cut interest rates amid signs of weakness in the labour market.
“I still think we’re probably, you know, maybe we’re 50 to 100 basis points off of neutral,” Waller said at the Yale School of Management CEO Summit in New York, indicating scope for rate cuts if required.
Lower US interest rates could boost discretionary spending, benefiting Indian IT companies that derive a large share of their revenues from the US market.
Strong Accenture results
Accenture posted better-than-expected first-quarter results on Thursday, driven by strong demand for artificial intelligence solutions that help clients improve productivity.
The IT consulting major reported revenue of USD 18.74 billion, beating analysts’ average estimate of USD 18.52 billion, according to LSEG data. New bookings rose 12 per cent to USD 20.9 billion, including USD 9.88 billion in consulting bookings and USD 11.06 billion in managed services.
During its post-earnings call, Accenture’s management said overall and discretionary spending levels remained broadly in line with the previous year.
Value buying
The rally in IT stocks may also have been supported by value buying following months of underperformance. The sector has remained under pressure this year due to factors such as concerns over H1-B visa changes, tariff uncertainties and other global headwinds.
After a prolonged correction, investors may be re-entering the space, attracted by relatively attractive valuations.
Weakening rupee
After opening stronger, the rupee pared gains and slipped against the US dollar. Around 11:30 am, the rupee was trading at 89.70 per dollar.
A weaker rupee tends to benefit IT companies, as a significant portion of their revenues is denominated in US dollars.
Top IT gainers today
Wipro and Infosys were the top gainers on the Nifty IT index, rising more than 2 per cent each. Persistent Systems gained nearly 2 per cent.
HCL Technologies, Coforge and Tech Mahindra advanced over 1 per cent each, while Tata Consultancy Services added around 1 per cent. LTI Mindtree was trading marginally higher, while Mphasis slipped 1 per cent, bucking the broader sectoral trend.
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