IT stocks follow the lead of tech stocks in the US; Tech Mahindra, Wipro and TCS among top index movers

Indian benchmark indices opened higher on Thursday, December 12, taking cues from buoyant global markets, especially tech stocks.

IT stocks, in particular, were the top index movers in Thursday’s morning session. The jump in IT stocks, which are considered to be the proxy for tech stocks, can largely be attributed to record high closing in the NASDAQ index.

NASDAQ, the tech-heavy index in the US, closed at a record high of 21,763 levels after nimble inflation in November boosted the bets on rate cuts. The US headline CPI came in at 2.7% vs. 2.6% in October, cheering investor sentiment as lower inflation could lead to lower interest rates in the coming months.

Market experts now price in a 100% probability of a 25 bps rate cut in the coming Federal Reserve policy meeting on December 17.

Following the developments, tech stocks in the US, including Tesla, Nvidia, META, and Broadcom, jumped up to 5% on Wednesday.

What is driving IT stocks?

IT stocks are positively correlated with tech stocks in the US, as the driving factors for both remain the same. The higher liquidity inflow in the economy due to lower interest rates increases spending capacity on technological advancements and tech demand globally.

In addition, the AI wave across different sectors will become the primary driver for new demand in the tech industry.

Taking cues from the tech stocks, Indian IT stocks have posted robust growth. The NIFTY IT index has delivered nearly 30% returns in 2024 on a YTD basis, on similar lines to NASDAQ’s 31% returns during the same period, indicating a very high and positive correlation between them.

Going forward, earnings commentary by the management of IT companies, the transition to AI-based products and services, and the interest rate trajectory in India and the world will be the key triggers for Indian IT stocks.