Nifty IT hits life high, tops 46,000; why are IT stocks in demand today?

Nifty IT in the morning deals recorded an all-time high at 46,002.65. All 10 constituents were trading with gains and it was the only index trading in green at that hour. Among others, around 10:49 AM, Coforge shares were up over 3 per cent, Tech Mahindra was up over 2 per cent, LTIMindtree, and Persistent Systems shares were up over 1 per cent. 

 

G Chokkalingam, Founder, Equinomics Research Pvt Ltd attributes the rise in information technology (IT) stocks to the depreciation of the value of the Indian rupee against the US dollar. 

 

"Industry prospects have not changed in my view, but the fall in the value of rupee against the US dollar has a positive impact on the IT space," said G Chokkalingam. Further, he suggested to stay defensive on IT stocks. 

 

The rupee fell 2 paise to near all-time low of 84.85 against the US dollar in early trade on Thursday on the back of foreign fund outflows and rising crude oil prices.

 

It should be noted that when the rupee weakens, IT companies typically benefit. This is because a significant portion of their revenues comes from overseas clients, primarily in US dollars. A weaker rupee increases the value of their dollar-denominated earnings when converted back to INR, boosting profitability. 

 

Meanwhile, in the US markets, the tech-heavy Nasdaq hit an all time high and breached the 20,000 level for the first time in Wednesday's trade also boosted sentiments in the domestic IT space. 

 

However, the US markets closed mixed with the Dow Jones lower by 0.22 per cent, S&P 500 up 0.82 per cent and Nasdaq up 1.77 per cent. 

 

Another reason for the rally in IT stocks could be attributed to bets intact on the Federal Reserve cutting interest rates later this month after an in line inflation data. 

 

A Labor Department report showed the Consumer Price Index (CPI) rose 0.3 per cent on a monthly basis in November, matching the 0.3 per cent increase. Annually, it stood at 2.7 per cent, in line with estimates.  Technically, Nifty IT has displayed a strong bullish breakout by breaching a key trendline resistance, as seen in the chart, as per Jigar S. Patel, sr. manager - equity research, Anand Rathi.  Patel added: This trendline breakout is a significant technical signal, indicating a shift in market sentiment and the potential for sustained upward momentum. Additionally, the index has surpassed the R4 level of the Camarilla pivot on the weekly timeframe, further strengthening the bullish outlook. The combination of these technical developments suggests that Nifty IT is likely to maintain its positive trajectory in the near term.  "Looking ahead, the index is expected to test the 49,000 level in the coming weeks, which aligns with the R5 Camarilla pivot—a critical resistance zone and a major hurdle for the ongoing uptrend. Considering this, it is advisable to book profits in the 48,000-49,000 range, as the 49,000 mark could act as a strong resistance and potentially stall the rally. This strategy balances capturing gains from the bullish move while being cautious of the significant resistance at higher levels," said Patel.