Nifty IT index up 1.7% on Fed cuts; sell the rally or buy the dips?

US Federal Reserve cut interest rates by 25 basis points and pencilled in two more reductions this year

Shares of India's information technology (IT) stocks rallied on Thursday after the US Federal Reserve slashed key interest rates by a quarter percentage point and pencilled in two more reductions this year.  

 

The Nifty IT index climbed up to 1.7 per cent, topping sectoral gainers, led by LTIMindtree’s 3.6 per cent rise. Wipro gained 2.2 per cent, while Infosys advanced 2.14 per cent.

 

As of 10:35 AM, the Nifty index was up 1.03 per cent, as compared to a 0.33 per cent advance in the benchmark Nifty50 index. 

 

So far this year, the IT gauge has fallen 15 per cent compared to a 7.5 per cent advance in Nifty50. In the same period, large-cap names like Infosys, Tata Consultancy Services and Wipro tumbled nearly 15 per cent each. 

 

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US Fed begins rate easing

Jerome Powell cut interest rates by 25 basis points and pencilled in two more reductions this year. Powell said that the labour market is showing growing signs of weakness, stating that revised job numbers mean it is no longer "very solid." 

 

"Uncertainty about the economic outlook remains elevated... The Committee is attentive to the risks to both sides of its dual mandate (unemployment and inflation management) and judges that downside risks to employment have risen," the Fed statement read. Going ahead, the Fed dot plot indicated two more rate cuts in the rest of 2025, one cut each in 2026 and 2027, and no cuts in 2028.

 

JM Financial said the Fed's shift to a more neutral stance drew a muted market reaction, as the chair described the rate cut as a risk management step. While a new member's call for a sharper 50 bps cut raised hopes of faster easing, projections of resilient growth, a weak labour market, and sticky inflation suggest limited scope for further cuts, it said. "The futures market is building in two more rate cuts by the end of 2025, which, we believe, will narrow to one." 

Time to sell or add? 

From the recent lows on September 8, the Nifty IT index has rallied nearly 8 per cent so far (16 sessions), led by gains in Infosys amid its buyback buzz. 

 

JM Financial earlier said the September Fed rate cuts could act as a catalyst for mean reversion in IT services valuations. However, if companies absorb most of the tariff increase, it could squeeze IT spending. 

 

The brokerage noted that while these pressures are driving higher vendor consolidation (a positive) and margin strain (a negative), benign valuations and subdued expectations suggest these risks are largely priced in. A Fed rate cut could therefore trigger a minor rebound.