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Informist, Friday, Dec. 13, 2024

MUMBAI – Shares of information technology companies are expected to rise next week, extending gains to the third consecutive week. Gains in these stocks are likely on the back of strong expectations that the US Federal Reserve will cut key interest rates by 25 basis points Wednesday, analysts said. However, these gains could be capped as the possibility of a Fed rate cut has been largely factored in, some of them said.

Several major Indian IT firms are likely to benefit from rate cuts in the US as they derive a large chunk of their revenue from their US businesses, and rate cuts could ramp up the pace of discretionary spending by clients there. The odds of a 25-bps rate cut by the US Fed are nearly 97%, according to the CME FedWatch Tool. There was a surge in these expectations Thursday after the latest US CPI for November came in line with expectations. While a rate cut is seen as a positive for IT stocks, rates being kept unchanged or any other surprises could trigger sharp sales in these stocks.

Further, the weakening rupee is also affecting the sector, said Vinit Bolinjkar, head of research at Ventura Securities. There could be additional pressure on the rupee if China devalues its currency yuan, he said. The falling rupee benefits Indian IT companies as a significant portion of their revenue is earned in dollars. The falling rupee will boost their earnings per share, Bolinjkar said.

China has been considering lowering the yuan's exchange rate if US President-elect Donald Trump follows through on tariff hikes on Chinese imports to the US, Reuters reported. This devaluing of the yuan would make Chinese exports cheaper, offsetting some of the tariff impact, and having a similar effect as lowering interest rates.

Information technology was the best performing sector this week, with the Nifty IT gaining nearly 3% and emerging as the top gainer among sectoral indices. In comparison, the benchmark Nifty 50 rose just 0.4% this week. Friday, the Nifty IT index closed 0.6% higher at 45995.80 points. The index is expected to be in the range of 46000-47000 points till early January, a research analyst covering the sector at a domestic brokerage firm said.

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Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

Reported by Alina Geogy

Edited by Akul Nishant Akhoury

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