Nifty IT jumps 4% ahead of US election outcome; TCS, Infosys among lead gainers: What is driving IT stocks?

Stock Market Today: IT stocks posted strong gains in Wednesday's trade, lifting the Nifty IT sectoral index higher despite ongoing uncertainty surrounding the 2024 US election outcome. The Nifty IT index jumped 4 per cent, with stocks such as Persistent Systems, LTIMindtree, TCS, Infosys, Wipro, HCL Tech and Tech Mahindra rising 4-6 per cent. The Nifty IT pack closed with gains of 4 per cent, with all 10 components in the green.

While the final outcome of the US presidential election will be clear later, early trends show former President Donald Trump taking the lead against Vice President Kamala Harris.

As Mint reported, citing initial projections by the Associated Press, Donald Trump has been projected as the winner in Kentucky and Indiana. He is leading in 19 US states compared to Kamala Harris, who is leading in 3 US states.

US media projected early that Trump has won the key battleground state of Georgia, flipping the state from its 2020 Democratic vote and delivering a significant setback to his rival, Kamala Harris.

Track US Election 2024 Key Highlights Here

What is driving IT stocks?

Early election trends showed Trump taking the lead, bolstering the dollar index. A stronger dollar benefits Indian IT companies, as they generate a significant portion of their revenue in US currency while bearing most of their operational costs in Indian rupees.

Experts say the expectations of a Republican sweep in the US election is a key positive for the IT players as Trump's policies are expected to strengthen the dollar.

"Given their significant presence in the US market, IT companies may benefit from a rebound in US equities following the Republican sweep in the US elections, which is one of the major factors behind today's gain," said Pravesh Gour, Senior Technical Analyst at Swastika Investmart Ltd.

"Strong quarterly results from IT companies or optimistic profit expectations could stimulate purchasing interest. Another reason is that foreign portfolio investors (FPIs) may be reviving their interest in Indian IT stocks, which would raise buying pressure," said Gour.

However, brokerage firm JM Financial believes Trump’s Presidency, while headline negative, will have a limited impact on India's IT Services players.

The brokerage firm pointed out that the US President has significant executive powers over immigration. The outcome of the US presidential elections will, therefore, have ramifications over the future of employment-based immigration.

However, JM Financial said Trump’s expansionary fiscal policy—cutting the corporate tax rate to 15 per cent from 21 per cent for domestic production—could be positive for IT Services demand as it eases budgetary pressures.

Sagar Shetty, a research analyst at StoxBox, said investors are keeping a close eye on the US election, as the election's conclusion will clarify the policy direction with potential policy changes that could attract new opportunities for companies, including favourable trade agreements and regulatory changes.

On the macroeconomic front, the US non-manufacturing PMI data suggested accelerated service activities in October. The PMI rose to 56.0 in October from 54.9 in September, a more than two-year high, indicating healthy growth in the service sector.

Also, with the upcoming rate cut expectations and improving employment status, the US economy's position is likely solidifying. The combination of all such elements is highly favourable for IT companies, fueling higher discretionary spending by clients in the coming quarters, Shetty said.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.