TATA consultants (TCS, Infosys and HCLTech), some of the biggest Indian IT companies, were under pressure as traders sold off their Futures & Options (F&O) positions ahead of the expiry of the monthly derivatives. The weakness in IT stocks reflected investors' cautious stance as they were preparing their portfolios for the expiry session.
According to market data, TCS and HCLTech futures fell in price and open interest, indicating that traders were unwinding long positions before the expiry and not making new ones. Coforge also saw weakness in its futures contracts and options data showed investors were reducing their exposure to Infosys ahead of the expiry.
Such activity is common during the last days of the F&O series when traders either make profits or cut losses before contracts expire. These moves often lead to more volatility, especially in highly traded sectors (e.g., information technology).
The options activity in TCS around the ₹2,400-₹2,500 strike price range indicated a lot of activity in TCS around these points, which means that traders are closely watching these levels in the short term for short-term direction. The concentration of options positions around these strikes will influence the price as expiry approaches.
Also the IT sector was under pressure on the back of mixed global cues. Investors are still monitoring demand trends globally, in particular in the United States and Europe, where spending on technology services has moderated due to macroeconomic uncertainty.
Even so, despite the near-term difficulty, analysts say that the recent decline is more due to derivatives positioning than a deterioration in business fundamentals. India’s leading IT companies will not see the near-term weakness as a significant erosion in business fundamentals is largely driven by derivatives positioning, but good long-term prospects of digital transformation, cloud computing, artificial intelligence, and cybersecurity as a whole can still exist as well as strong growth for India’s top IT companies with stable balance sheets, a diversified client base and the business environment and strong demand for digital transformation, cloud computing, artificial intelligence and AI services.
Market experts said that expiry-related volatility can cause short-term price swings that do not reflect the underlying strength of a company. Institutional investors are more likely to focus on earnings growth, deal wins, client spending and management outlook than short-term F&O activity.
The IT sector has been mixed in recent months as investors weigh expectations of lower global interest rates against concern over slower discretionary technology spending. There are going to be lots of corporate announcements, big deal wins and management commentary for the sector to keep in mind in the coming quarters.
Investors are also closely tracking foreign institutional investor (FII) activity, currency movements and developments in global technology markets, all of which can influence sentiment towards Indian IT stocks.
As the monthly derivatives expiry is on its way up, I expect there to be a lot of volatility in the front-line technology stocks. But as long as long-term investors do not react to short-term F&O-driven moves and only look to company fundamentals and long-term growth prospects, I would say I understand that.
With traders aggressively reducing their derivatives positions, TCS, Infosys, HCLTech, and other IT stocks might continue to see volatility in the near term. Once the expiry-related activity is done, the market will return to earnings performance, business outlook and global demand trends.
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