Indian IT stocks fell on Monday as expectations of higher US interest rates increased after Federal Reserve Chairman Kevin Warsh reiterated the central bank's focus on bringing inflation back to its 2% target. The rupee also opened 11 paise lower at Rs 95.49 against the US dollar, compared with its previous close of Rs 95.38.
Warsh, speaking at the Fed's annual conference in Jackson Hole, Wyoming, said the 2% inflation objective remained a firm target. Markets are now pricing in a more than 50% chance of a rate increase at the Fed's September meeting.
Why Fed Rate Comments Matter
The US interest-rate outlook is closely watched by Indian IT stocks because a large part of their business comes from US clients and the sector's valuations are sensitive to changes in global interest rates.
When the Federal Reserve cuts rates, the cost of money generally falls and the discount rate used to value future corporate earnings also declines. This can support valuations of companies whose earnings are expected to grow over a longer period. Higher rates work in the opposite direction by increasing the rate used to discount future cash flows.
For Indian IT companies, the US rate cycle also matters because the US is a major market for the sector. Changes in US borrowing costs can affect corporate spending and technology budgets, while movements in global capital flows can influence valuations of Indian technology stocks.
The latest shift in rate expectations has therefore coincided with a decline across the IT stocks shown in the data.
IT Stocks Fall
Newgen Software Technologies fell 5.59%, the steepest decline among the stocks shown. Persistent Systems dropped 3.91%, while Sonata Software declined 3.25%.
KPIT Technologies fell 2.89%, Birlasoft declined 2.56% and Zensar Technologies lost 2.45%. Latent View Analytics and Hexaware Technologies fell 2.31% and 2.23%, respectively.
Infosys declined 2.23%, while Tata Elxsi fell 2.15%. Wipro, Coforge, Happiest Minds Technologies, Tata Consultancy Services and Tech Mahindra were also lower.
F&O Setup
The derivatives data shows fresh short positions in several IT stocks. Persistent Systems futures fell 4.23%, while open interest increased 20.93%. KPIT Technologies futures declined 3.08%, with open interest rising 40%.
Tata Elxsi futures fell 3.15%, while its open interest increased 84%.
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