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Informist, Friday, Dec 20, 2024

MUMBAI - Shares of information technology companies are expected to trade with a negative bias next week in the backdrop of the US Federal Reserve's latest guidance of fewer than anticipated rate cuts in 2025, according to analysts. Early on Thursday, the Fed reduced key interest rates by 25 basis points to 4.25-4.50%, in line with expectations, but indicated that the pace of future rate cuts would be slower. This could impact client spending in the world's largest economy, which contributes to 60% of the revenue of domestic IT companies.  

The Fed reiterated that the economic outlook was uncertain, and it was strongly committed to bringing inflation towards its 2% target. The cautious outlook pulled Indian equities sharply lower. Adding to the market's woes were expensive valuations, and continuing foreign investor outflows.

This week, the Nifty IT index closed 4.8% lower at 43771.05. By comparison, the benchmark Nifty 50 and Sensex closed 4.8% and 5% lower, respectively. Of the 10 constituents of the IT index, nine declined over the week. While LTIMindtree and L&T Technology Services were among the worst performers of the week, Coforge was the only stock that gained. Next week, support for the IT index is seen at 42376 and resistance at 46345.    

"The Federal Reserve's recent guidance that they would not be too aggressive in cutting rates next year, instead the decisions could be more data dependent. Because of this, investors' confidence has reduced in the IT space. We have also seen some selling pressure in Nasdaq after this announcement," said Ruchit Jain, vice-president of technical research at Motilal Oswal Financial Services Ltd.

"We had seen a lot of long positions getting built in IT stocks before the Federal Reserve's announcement. But today, we saw unwinding of these positions. Even after Accenture's positive guidance, there was no buying interest in the IT space. The IT stocks could see a pullback in the near-term. However, the major trend is not bearish," said Jain.

Accenture scaled up its revenue growth guidance for 2024-25 (Sep-Aug) to 4-7% from 3-6%. The company's revenue for the quarter ended November came in at $17.7 billion, up 9% from $16.22 billion a year ago. The revenue was nearly $240 million above the top end of the company's guided range of $16.85 billion–$17.45 billion. The US firm is a major indicator for Indian technology companies.

The improvement in Accenture's growth guidance is due to foreign exchange revisions, and not due to fundamental factors. Thus, the results are not really positive at a fundamental level, said Rishubh Vasa, research analyst at Indsec Securities. There has also been delay in client budgets being decided by US companies. US companies will now decide on budgets around February after Donald Trump takes charge as president, instead of making concrete decisions by December, the analyst said. 

TOP HEADLINES
* TCS expands pact with Bank of Baroda to deliver banking svcs to the unbanked
* Accenture raises FY25 revenue growth guidance to 4-7% on higher IT spending
* Infosys' CSR arm signs MoU to improve engineering education
* Infosys opens development centre in Kolkata with INR 4.26-bln investment
* Wipro incorporates step-down arm Capco Consulting Middle East FZE in Dubai
* HCL Tech launches innovation lab for SAP Business AI in Germany
* Sonata Software launches AI-powered test acceleration platform 'IntellQA'
* Infosys launches Google Cloud centre of excellence to harness AI for growth
* Wipro to buy 100% stake in 3 Applied Value Group cos for up to $40 mln
* Amazon, Flipkart antitrust cases should be transferred to Karnataka HC - SC
* LTIMindtree launches Cyber Defense Resiliency Center in Bengaluru
* Mastek gets Amazon Web Services well-architected partner status
* IPO Alert: GNG Electronics files DRHP for INR 8.25-bln fresh issue, OFS
* Infosys to invest INR 83 million in 4baseCare Precision Health

Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

Reported by Darshan Nakhwa 
Edited by Avishek Dutta

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