IT stocks plunge as investors lock in gains before US Fed rate decision, Nifty IT drops 3.7%

Indian IT stocks experienced a sharp sell-off in Wednesday's trade, leading the Nifty IT index to plunge by 3.7% to 41,820 points, falling below the 42,000 mark for the first time since September 9.

This decline has pushed the index to a two-week low. All 10 constituents are currently trading with significant losses, with MphasiS emerging as the biggest loser, dropping 5.6%. L&T Technology Services, Persistent Systems, Tata Consultancy Services, HCL Technologies, and Tech Mahindra followed closely, each trading with losses ranging between 3% and 4%.

Other major IT stocks, including Wipro, Infosys, Coforge, and LTIMindtree, are facing declines between 1.8% and 3.1%. Today's drop has also led the Nifty IT index to lose 2.02% in the current month so far.

What's pressuring the IT sector?

The sharp decline in IT stocks observed in today’s session is largely attributed to profit booking by investors, following a strong rally in recent months. Since June, IT stocks have been on a bullish run, with the Nifty IT index gaining significant momentum and closing in positive territory for three consecutive months.

Between June and August, the Nifty IT index surged by an impressive 32%, prompting investors to lock in gains as part of a profit-taking strategy.

This profit booking took place ahead of the anticipated rate-reduction cycle by the US Federal Reserve, expected to begin on Wednesday, September 18. With inflation easing significantly in the US and the labor market showing signs of cooling, investors are positioning themselves for the upcoming policy shift."

Markets had already priced in a 25-basis point rate cut, with expectations that the Fed might opt for a 50 basis point reduction. Analysts believed that a 50-basis point cut could trigger a sharp rally in stocks.

The sharp drop in IT shares is weighing on the overall market, dragging the frontline indices lower in today's intraday trading. Infosys, TCS, HCL Tech, and Tech Mahindra are among the major IT players pulling the Nifty 50 index down.

However, strong support from financial stocks is helping offset a steeper decline, limiting the extent of the market’s overall losses.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.