Nifty IT tumbles 4% as Coforge, US Fed rate hike fears trigger sell-off

Nifty IT tumbled nearly 4 per cent in Wednesday's trading session, with all constituents trading in the red. The index hit the day's low of 28,779.80, down 3.7 per cent from its last close.

 

In the IT basket, stocks registered declines in the range of 5-9 per cent. Based on the day's low, Coforge emerged as the biggest loser with an 8.7 per cent fall. Infosys, Tech Mahindra, HCLTech, Persistent Systems, and TCS shed in the range of 3-4 per cent each. Meanwhile, Mphasis and OFSS were down in the range of 2-3 per cent.

 

So far this year, the IT index has declined nearly 24 per cent. In one year and one-month time frame, the index is down17.72 per cent and 8.04 per cent, respectively

 

 

What's behind the weakness in IT stocks today?

 

Several factors continue to weigh on IT stocks, including bearish commentary from brokerage firm Antique, the resignation of Coforge’s Independent Director and Chairman, and uncertainty ahead of next month’s Fed meeting.

 

Antique noted that the current capex wave is skewed toward capacity-building - GPUs, data centres, and cloud networks- which lands on hyperscaler balance sheets well before it converts into the application-layer, integration, and AI-adoption work that Indian IT firms bill for. This conversion typically lags infrastructure spending by several quarters. 

 

“Accelerating hyperscaler growth and record backlogs point to a large multi-year pipeline of enterprise workloads still to be migrated, integrated, and managed - the layer where Indian IT partners actually monetise. However, in the near term, hyperscalers will continue to ask Indian IT services partners for lower prices as they continue to invest in capacity-building,” brokerage said.

 

Another factor contributing to the selling pressure in Nifty IT is the resignation of Coforge’s Chairman with immediate effect amid concerns raised by an internal audit over the Board's Evaluation Exercise. The company in an exchange filing on Wednesday, said that the members of the Board noted the resignation of Non-Executive Independent Director and Chairperson of the company, OP Bhatt, with immediate effect. The release added that the Board decided to designate Vivek Sharma, Non-Executive Independent Director, as interim Chairperson of the company till January 31, 2027.

 

In intra-day the company’s share price tumbled 8.7 per cent to ₹1,781 on the NSE. In comparison, the Nifty was down 0.6 per cent, and the Nifty IT was down 3 per cent on Wednesday. 

 

IT stocks have also been under pressure as a direct reaction to the upcoming US Federal Reserve meeting. According to the CME FedWatch tool, the probability of a hike now stands at 58 per cent, up from 47 per cent last month.

 

Sunny Agrawal, head of Fundamental Research at SBI Securities, noted that domestic IT stocks are under pressure due to concerns that the US Federal Reserve may adopt a more aggressive stance on rates, which could impact discretionary IT spending in North America.

 

Earlier last week, In the Jackson Hole speech, Fed Chair Kevin Warsh's remarked that inflation remains uncomfortably high, which markets read as hawkish. Another contributing factor is H-1B visa fee hike, Nitant Darekar, Research Analyst at Bonanza noted that, "the real sting was the expanded 9-11 visa fee that kicked in today. Paying $4,000 on every H-1B extension and $4,500 on every L-1 turns an occasional charge into a running annual bill for firms built on onshore Indian engineers, and the Street is reading that straight into margins in a sector already down roughly 24 per cent this year."

 

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