Why Indian IT stocks are surging after US Fed meeting
The Nifty IT index soared to an all-time high on Thursday, thanks to positive takeaways from the US Federal Reserve's meeting. The Federal Open Market Committee (FOMC) maintained its key interest rate at 5.25-5.5%, its highest level in 22 years. However, the rate-setting panel predicted three rate cuts next year, with a total 75 bps reduction, contrary to earlier projections. This optimistic outlook sparked a rally in Indian IT stocks, as the US is a crucial market for these companies.
Nifty IT index gains 3.12%, Mphasis emerges as top gainer
Starting the day at 33,452 points, the Nifty IT index climbed to a record-breaking 34,100 points, a 3.24% increase. All 10 constituents of the index are currently in the green, with Mphasis leading the pack with a 6.75% rally at Rs. 2,590 per share. Other top performers include Coforge, HCL Technologies, L&T Technology Services, Persistent Systems, Tech Mahindra, LTIMindtree, Wipro, Infosys, and TCS.
Six stocks hit new all-time highs in trade
Six of these stocks—Mphasis, Coforge, Persistent Systems, HCL Technologies, L&T Technology Services, and LTIMindtree—reached new all-time highs today. This impressive rally has pushed the Nifty IT index to a 19% gain year-to-date, a stark contrast to the 26% drop seen in CY22. The potential rate cuts have significantly influenced positive market sentiment for Indian IT companies with substantial revenue tied to the US market.
Sensex, Nifty50 reached record highs
The Nifty50 skyrocketed to an unprecedented 21,189.55 points, while the Sensex hit a remarkable 70,540 points. Rate-sensitive sectors like banking, financial services, realty, auto, and other consumer durable stocks are all trading in the green today, reflecting the positive influence of the Fed's dovish outlook.
Fed expects US economy to grow by 2.6% this year
The Fed foresees a 2.6% expansion in the US economy for this year, up from the earlier 2.1% estimation in September. However, they project a slowdown to 1.4% in 2024. Fed Chair Jerome Powell mentioned that the economy "substantially" slowed down in the fourth quarter of 2023 but stayed on course because of strong consumer demand and improving supply conditions.
Fed commits to returning inflation to its 2% objective
The Fed foresees a slowdown in headline inflation to 2.8% in 2023 and a further dip to 2.4% in 2024. The committee also emphasized its strong commitment to restoring inflation to the 2% target. The Fed acknowledged ongoing high inflation but also highlighted a decrease in inflation over the last year. The FOMC members also lowered the expected year-end interest rates to a range of 4.50% to 4.75%, signaling an anticipated 0.75 percentage point cut.
