After a stellar performance in June with double-digit gains, the Nifty IT index started July on a strong note as investors grew expectations that the US Federal Reserve would cut interest rates in September.
Amid this optimism, the Nifty IT index jumped 2.6% to 37,093 points in today’s intraday trade, hitting its highest level in nearly 4 months. All the 10 components of the index are trading in the positive territory, Sustainable systems topped the list with a gain of 5.6%.
Other IT majors such as MphasisTech Mahindra, LTI Mindtree, L&T Technology Services, TCS, Wipro Infosys, Coforgeand HCL Tech are also trading with gains between 2.1% and 3.5%.
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Markets on Friday rose bets on expectations that the Federal Reserve would cut interest rates by September and then again in December after the release of the personal consumption expenditures (PCE) index showed inflation in May fell to the lowest annual rate in more than three years.
The US PCE index indicated that inflation did not rise at all from April to May, which is in line with expectations and points to easing pressure on prices. This strengthened the case for the Fed to lower borrowing costs this year. Core PCE prices rose by only 0.1% from the previous month, the smallest increase in six months, while the annual rate fell to 2.6%, the lowest since the beginning of 2021.
San Francisco Federal Reserve Bank President Mary Daly, a member of the 2024 Federal Open Market Committee, commented that the latest inflation data is “good news that policy is working.”
Following the PCE report on Friday, the probability of a rate cut by September rose from 64% to 66%. The probability of a rate cut by November rose from 76% to 78% and rose from 94% to 95% by December.
The Fed has postponed rate cuts and revised its rate cut projections as inflation remains above the central bank’s target range into 2024. Between December 2023 and February 2024, Indian IT stocks surged in anticipation of the Fed’s first rate cut in March 2024. However, due to persistent inflationary pressures, the Fed kept its rates on hold during that month and continued this stance in subsequent meetings.
With renewed optimism for a Fed interest rate cut, IT stocks have witnessed increased buying activity. The overall positive sentiment and surge in foreign portfolio investor (FPI) inflows have also contributed to IT stocks trading higher.
Despite major sectoral indices hitting new all-time highs at least once in 2024, the Nifty IT index has not registered this milestone. The last time the index hit an all-time high was in January 2022 at 39,446 points. In February, the index came close to the 38,559 level but could not cross it.
Impressively, the Nifty IT index ended a 3-month losing streak to gain nearly 12% in June, its best monthly performance since August 2021, when it had gained 13.42%.
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