Given that the Indian IT sector has huge exposure in the US, the Nifty IT index lost over 1% on Thursday's trading session after the US Federal Open Market Committee (FOMC) on Wednesday hiked the interest rates by by 25 basis points, to 4.75–5%.
According to Prashanth Tapse, Research Analyst, Sr VP Research, Mehta Equities Ltd, IT stocks are trading under pressure amid concern over US markets and turmoil in banking space.
At 11:18 IST on Thursday, Persistent Systems Ltd, L&T Technology Services Ltd, and LTI Mindtree Ltd were among the major laggards of the index down 1-2%. Tech Mahindra Ltd and Tata Consultancy Services Ltd were trading flat.
Following the rate hike, the US benchmark indices closed lower by 1.6% each, and there was a sharp fall in regional bank stocks. Further, Treasury Secretary, Janet Yellen's comment on not considering any plans to guarantee all bank deposits weighed on the US market sentiments.
However, it also made clear that the recent turmoil in the banking system will undoubtedly lead to tighten credit conditions.
A further 25 basis points hike in calendar year (CY)2023 is predicted by the FOMC's median forecast.
"The Indian IT sector has large exposure in the US region and moreover has the highest exposure to regional banks and markets are assuming that this fallout of banks can further soften or lower tech spends by banks over the short term, which can lead to re-rating the sector outlook. We continue to remain neutral to negative on the recent developments seen in US banking space in the short term," said Tapse.
On the technical front, analysts said that the Nifty IT index is likely to consolidate after the decline, and any major action is unlikely.
According to Rajesh Bhosale - Equity Technical and Derivative Analyst, Angel One, IT index is placed around key support of 28,000 and is retesting the January swing low.
"One needs to see how prices hold this support, if broken then further downside can be seen in coming weeks however if some strength is seen then we may see a strong rebound," added Bhosale.