The Indian IT sector took a significant hit on Wednesday, September 18, as investors remained cautious ahead of the U.S. Federal Reserve's crucial meeting. Major IT stocks, including Tech Mahindra, Infosys, Wipro, LTIMindtree, and TCS, traded with losses of up to 3%, dragging the Nifty IT index down by nearly 3%.

Key Highlights:

• Nifty IT Losers: Tech Mahindra, Infosys, Wipro, LTIMindtree, and TCS were among the biggest losers on the Nifty 50, contributing to the overall sector decline.
• Mphasis Takes the Hardest Hit: Shares of Mphasis Ltd. dropped over 5%, while Persistent Systems also saw a sharp fall, down 4%.
• Broader Market Reaction: The Nifty IT index saw all 10 of its constituents trading in the red, underscoring widespread investor concern ahead of the Fed’s announcement.

Global Economic Concerns:

Much of the market movement was driven by expectations around the U.S. Federal Reserve's policy stance. Market experts are divided on the Fed's potential rate cut, with some forecasting a 50 basis points (bps) cut, which could indicate deeper concerns about a potential U.S. recession.

• Two-Thirds of Traders Expect 50 bps Cut: Analysts predict the Fed could opt for a bold 50 bps cut, signaling concerns over the U.S. economy's slowing growth.
• Geojit Financial Services Insight: VK Vijayakumar, Chief Investment Strategist of Geojit Financial Services, commented, “An ideal and possible outcome would be a 25 bps rate cut, accompanied by a dovish message suggesting further cuts to come.”

Potential RBI Action

In light of the Fed’s potential moves, the Reserve Bank of India (RBI) may also step in. Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies, shared with CNBC-TV18 that a 50 bps cut by the Fed would likely prompt action from the RBI during its October policy meeting. A 25 bps rate cut with dovish commentary could soothe market concerns.

Stock-Specific Outlook

Several IT stocks were spotlighted in brokerage updates:

• TCS Receives 'Outperform' Rating: Brokerage firm Macquarie has given TCS an ‘Outperform’ rating with a price target of ₹5,740. Macquarie’s note highlights that TCS is well-positioned to grow faster than Infosys in both FY26 and FY27. The company is expected to benefit from a rebound in spending, especially in cloud migration deals.

• LTIMindtree Faces 'Sell' Rating: On the other hand, Citi issued a ‘Sell’ recommendation on LTIMindtree, with a price target of ₹5,635 per share. Citi’s analysis suggests continued pressure on margins as revenue growth remains moderate, compounded by cost-saving deals.

Accenture’s Shift in Promotion Cycle

In related global developments, Accenture has announced a significant change in its employee promotion cycle. Promotions, traditionally held in December, will now be delayed until June, reflecting the company’s efforts to navigate a challenging macroeconomic environment. Accenture’s move comes amid tightening corporate spending, particularly in the IT and professional services sectors.

IT Sector's BFSI Exposure

The Banking, Financial Services, and Insurance (BFSI) sector continues to be the primary revenue driver for most Indian IT companies. According to JPMorgan, BFSI accounts for as much as 60% of revenue for some firms, making the sector's performance critical to the overall health of IT services companies.

Conclusion

The Indian IT sector's decline highlights the market's sensitivity to global economic developments, particularly the outcome of the U.S. Federal Reserve meeting. As investors await clarity on interest rates, the near-term outlook for IT stocks remains uncertain, with major players like TCS and Infosys experiencing notable declines. However, strategic shifts and potential opportunities in cloud services and BFSI could offer some upside in the months ahead.