IT stocks rally as US Fed cuts interest rates by 25 bps; TCS, Infosys, Tech Mahindra soar up to 2%

IT stocks

The rate cut in the US is structurally positive for Indian IT companies as it aids in more spending by the US companies. The US accounts for 70% of India’s IT and services exports, making it one of the crucial trading partners. Higher spending by the US companies is largely influenced by the economic conditions in the country. The cheap cost of capital activates higher spending by the tech companies, leading to more contracts for Indian IT companies.

The Indian IT sector is undergoing through structural slowdown due to weak economic conditions in the West. The IT bellwether companies like TCS also announced layoffs, adding more worry to the prospects of the sector. In addition, increased AI adoption across verticals also plays a crucial role in deciding prospects for the sector.

The 25 basis point rate cut for now and projections for two more rate cuts in the remaining 2025 could elevate conditions and sentiments for the IT sector in India. Investors of IT stocks have witnessed a tough period in 2025 with major companies trading nearly 20% lower from its peak levels touched at the start of 2025. On a YTD basis, TCS shares trade 20% lower, Infosys 16% lower, HCL Technologies 19% lower, and the entire NIFTY IT index 15% lower.The shares of IT companies were recently trading higher after buyback announcement by Infosys, boosted the investor sentiment.

Experts believe the recent rate cuts could help change the outlook for IT stocks. However, the increased risk of unemployment could further dampen the outlook for the sector.