IT stocks drop up to 2%, snap three-day gaining streak on profit booking after Fed rate cut-led rise

The shares of IT companies dropped in trade on September 19 as investors may have resorted to profit booking at elevated levels. The fall in the share prices pushed the Nifty IT index down around 1 percent to 36,385 in the afternoon.

The sectoral index is currently the top loser on the market today. It has now snapped a three-day gaining streak.

HCL Tech shares were the top loser on the index, dropping nearly 2 percent to trade at Rs 1,468.70 apiece. Coforge and OFSS shares fell around 1.4 percent each. Heavyweight Infosys shares fell more than 1 percent, dragging down the index. Persistent Systems shares also declined more than 1 percent.

Wipro, Mphasis and Tata Consultancy Services (TCS) shares were down around 1 percent. LTIMindtree and Tech Mahindra shares were trading in the red with marginal losses. All constituents of the index are currently in red, as seen as 1 pm.

The Nifty IT index had earlier jumped as much as 2 percent on September 18 after US Federal Reserve slashed its interest rate by 25 basis points. The index then pared some gains to close nearly 1 percent higher at 36750.25.

US Fed cuts rates by 25 bps:

The US Federal Reserve on September 17 cut its benchmark interest rate by 25 bps to 4-4.25 percent, in line with analyst expectations. Notably, this marked the first rate cut announced by the American central bank since Donald Trump began his second term as the President of the United States.

More rate cuts on the way?

Policymakers hinted at two more quarter-point cuts this year (50 bps in total), plus one cut in 2026 and another in 2027. One official projected a whopping 125 bps of easing by December.

In its statement, the US Fed said "recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated." It added that "downside risks to employment have risen", prompting the shift in policy.

Why IT stocks surged after Fed's rate cut:

A rate cut in the US is expected to increase the discretionary spending limit, which in turn benefits IT companies which derive a significant portion of their revenue from the North American market.

What analysts say?

"The FED continues to face a delicate balancing act following a 0.25% rate cut at its latest meeting in September. Whilst the rate cut was expected, it is of more note to listen to what Fed Chair Jerome Powell said in the Press Conference afterwards, where he mentioned that policy decisions remain challenging, and the committee members are still split on further rate cuts, with 10 out of 19 policy makers seeing two or more rate cuts this year," said Ross Maxwell, Global Strategy Lead at VT Markets.

"Financial markets are likely to welcome the rate cut in the near term, as lower borrowing costs ease pressure on households and businesses. Equity markets may see short-term support, though bond yields could remain volatile as investors weigh growth concerns against inflation risks," he added.

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