Indian IT stocks came under heavy selling pressure on Wednesday, with huge tech companies tanking and sending the Nifty IT index lower by more than 2%.
The Nifty IT index fell as much as 2.63% as all the stocks in the index were in negative territory. Large-cap IT names and mid-cap technology stocks also were selling off as investors were worried due to weak global market signals.
Infosys, Tata Consultancy Services (TCS), Tech Mahindra, Wipro, Persistent Systems, Coforge and Oracle Financial Services Software were among the stocks that declined by 2-3%.
IT stock sell-off also reflected weakness in the rest of the Indian market. Higher oil prices and global bond yields compounded investor sentiment and reduced appetite for riskier assets.
US Tech Stocks Also Decline
The weakness in Indian IT stocks followed a decline in US technology shares during the last trading session.
The technology-laden Nasdaq Composite closed at 26,099.77, down 271.11 points, or 1.03 percent, at 26,099.77. Dow Jones Industrial Average and S&P 500 were also down.
The decline in Wall Street was driven by a sharp increase in crude oil prices and Treasury yields and growing fears about inflation and government debt levels.
The 10-year Treasury yield rose
Higher US bond yields can put pressure on technology and other growth-oriented stocks because higher yields can make equities relatively less attractive and increase fears of future borrowing costs.
For Indian IT companies, global developments are particularly important because a large portion of their revenue comes from international markets, especially the US. As such, movements in global technology stocks and changes in the broader economic outlook can impact sentiment toward Indian IT shares.
Nifty IT Technical Outlook
Despite Wednesday’s decline, the Nifty IT index has been in a more consolidated range for the past several weeks.
According to Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, the index has been consolidating between 31,955 and 30,034 since the end of July.
The index has mostly oscillated between its 200-day and 100-day exponential moving averages (EMAs). The flattening of key moving averages also indicates a sideways trend rather than a strong directional move.
Shah said that the current consolidation followed a sharp recovery in the index. The Nifty IT index had rebounded nearly 20% from the low of 25,699 on July 1 before settling into a period of consolidation.
As a technical analyst, this may be seen as a healthy pause after a strong recovery and not as a sign of a long-term reversal, he said.
Breakout Levels to Watch
The 31,955-30,034 range remains an important technical zone for the Nifty IT index.
A big move above the upper end of the range might give a fresh bullish signal and potentially open the door for further gains. A decisive pull-off below 30,034 would be a negative directional signal and further pressure on the market.
So investors will be looking for more clues around world technology shares, US bond yields, crude oil prices and market sentiment.
The sharp fall in IT stocks yesterday underscored the sector’s susceptibility to global macroeconomic developments. The longer-term outlook of the Nifty IT index will be driven by earnings, technology spending and demand from key overseas markets, but the long-term direction of the Nifty IT index will be very much dependent on whether it breaks out of its consolidation range.
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