IT shares outperform in a weak session, NIFTY IT index surges 1.25%; here is why

Shares of information technology (IT) companies were witnessing buying interest on Wednesday, December 3, in an otherwise weak session led by gains in heavyweights like Tata Consultancy Services, Infosys, Wipro, Tech Mahindra, HCL Technologies and Sonata Software.

The measure of IT shares on the National Stock Exchange, NIFTY IT index, rose as much as 1.24% or 466 points to hit an intraday high of 38,007. Within the IT space, mid- and small-cap IT shares were in line with their larger peers as NIFTY MIDSMALL IT & TELECOM index advanced as much as 1%.

Nine out of 10 shares in the NIFTY IT index were trading higher while 15 out of twenty stocks in the NIFTY MIDSMALL IT & TELECOM index were trading higher.

IT stocks came under buying interest after the rupee fell to record low of 90.14 against the US dollar. Weaker rupee in comparison to the US dollar augurs well for IT companies as they earn significant amount of revenue in dollars and a weaker rupee will lead to higher revenue for IT companies in the upcoming quarter.

IT companies generally earn 60–75% of their revenue in US dollars. Meanwhile, most of the expenses of the IT companies are in rupees and when dollar, while costs largely remain same stable, results in higher profit margins for the IT companies, analysts noted.

A weaker rupee also allows Indian IT firms to reduce pricing slightly in dollar terms making them attractive for gaining new orders from potential and existing clients, analysts added.

Rupee weakens to record low

On Tuesday, the Indian unit hit the psychological 90-dollar level in intraday trade before settling 43 paise down at an all-time low of 89.96 against the US dollar, largely owing to continued short-covering from speculators and sustained importer demand for the American currency.

Forex traders said multiple pressures, like foreign fund outflows from equities and lingering uncertainty over the Indo-US trade deal, are keeping investor sentiment fragile.

A Bloomberg report stated that India remains one of the few major economies that has not yet finalised a trade agreement with the US, although officials are optimistic about concluding one soon.

As of 12:25 pm, NIFTY IT index traded 1.23% higher and was among the three notable sectoral gainers among the 15 major sector gauges compiled by the NSE.