Nifty IT extends rally, crosses 40,000 level for first time; what’s behind the surge?

Extending its winning streak for the fourth consecutive trading session, the Nifty IT index achieved a significant milestone, crossing the 40,000 mark for the first time and hitting a new all-time high of 40,059 points, marking a gain of 2.10%.

This milestone comes after the index first surpassed the 39,500 mark on Monday, a level it had not seen in 28 months. Since then, the index has maintained a strong upward trajectory, culminating in today's historic achievement. In the last 4 days, the index has gained 7.35%.

In today's trading session, five of the 10 index constituents reached new 52-week highs, posting gains ranging from 2% to 3%. These include TCS, Wipro, Infosys, Tech Mahindra, and Mphasis.

Several factors are propelling IT stocks, notably the healthy financial performances of India's top IT companies, TCS and HCL Tech, have sparked optimism among investors regarding the sector's potential recovery.

Another catalyst driving this rally is the expectation of a Federal Reserve rate cut, prompted by the recent decline in the US annual inflation rate for the third consecutive month to 3% in June 2024. This marks the lowest rate since June 2023, down from 3.3% in May and below the projected 3.1%.

Federal Reserve Chair Jerome Powell indicated on Monday that the lower-than-expected June inflation figures have bolstered confidence in achieving the inflation target. He emphasised that the central bank will not wait for inflation to reach 2% before implementing rate cuts.

Fed Governor Adriana Kugler echoed this sentiment on Tuesday, expressing cautious optimism that inflation is trending towards the target rate.

According to CME's FedWatch Tool, markets are fully anticipating a rate cut at the Fed's September meeting, with traders favoring bets on three 25-basis point cuts this year instead of two. Expectations are also high for rate cuts from other major central banks in Europe and Asia.

Economists at Goldman Sachs have indicated favorable conditions for Federal Reserve easing. They foresee the first rate cut as likely in September but also see a compelling case for earlier action, potentially as soon as July.

Further, Citi analysts anticipate significant rate cuts by the U.S. Federal Reserve over the next eight meetings through the summer of 2025. Expecting a cooling economy with increasing unemployment, Citi forecasts that the Fed will reduce rates by 25 basis points at each meeting, starting in September and continuing until July 2025.

This strategy aims to lower the current benchmark rate of 5.25%–5.5% to 3.25%–3.5%, a level expected to be maintained throughout the remainder of 2025.

Meanwhile, the surge in IT stocks today has propelled the benchmark indices to record highs. The Sensex soared past the ₹81,000 mark, reaching a new pinnacle at 81,485 points, while the Nifty 50 breached 24,800 for the first time, setting a new all-time high of 24,837 points.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.