IT Stocks Slide As Fed Rate Hike Bets Rise; Persistent Systems, Wipro And Infosys In Focus

The Nifty IT index was down 1.8% at 11:30 am on August 31 after climbing 3.5% in the previous session. Persistent Systems, LTM and Wipro were among the major decliners, falling 3.8%, 2.7% and 2.4%, respectively.

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Persistent Systems, Wipro Lead Sectoral Decline

Selling was visible across several major technology stocks as investors reassessed the interest-rate outlook in the U.S. The Persistent Systems share price declined 3.8%, while the Wipro share price was down 2.4%. LTM fell 2.7%.

The move came a day after a strong rally in the sector. The Nifty IT index had gained 3.5% in the previous session, making Monday’s decline a notable reversal.

Infosys was also among the IT stocks under pressure. The Infosys share price came under selling pressure alongside other large technology companies as expectations around U.S. monetary policy shifted.

The technology sector has significant exposure to the U.S. market, where changes in interest rates can influence corporate spending, financial conditions and the valuation of companies whose earnings are expected over a longer period.

Warsh Remarks Shift Rate Expectations

Warsh reiterated at the Federal Reserve’s annual conference in Jackson Hole, Wyoming, that the central bank remains committed to bringing inflation back to its 2% target.

His comments prompted markets to increase bets on a rate hike at the Federal Reserve’s September meeting. More than 50% probability of a September rate increase was being priced in after the remarks.

The change in expectations also supported the U.S. dollar, adding to the pressure on global technology shares. Higher interest-rate expectations can weigh on valuations of growth-oriented companies because future earnings are discounted at higher rates.

For the Indian IT companies, the U.S. rate outlook is particularly relevant because the region remains a major source of revenue. Movements in the dollar can also affect reported earnings when overseas revenue is converted into rupees.

Oil Prices Add To Inflation Concerns

A rise in crude prices has added another factor to the inflation outlook. Oil prices moved higher after the U.S. military struck Iranian rocket launchers that it said were being prepared to deploy mines in the Strait of Hormuz.
The action marked the first confirmed U.S. military strike against Iran in more than a month. The development added to concerns surrounding energy supplies and inflation.

The gold price and crude price are also being watched alongside currency and bond-market moves as investors assess the impact of the latest geopolitical developments on inflation expectations.

U.S. Data Ahead Of September Meeting

Market attention now shifts to upcoming U.S. economic data. The nonfarm payrolls report due on Friday and consumer inflation figures scheduled for next week are expected to provide fresh information before the Federal Reserve’s September policy decision.

The data could influence expectations for the path of U.S. interest rates and, in turn, remain an important factor for technology stocks. For the Nifty IT index, movements in the U.S. rate outlook, currency markets and global risk sentiment will remain key factors as trading continues.