IT stocks took a sharp hit today, 18 September, as market participants showed caution ahead of the US Federal Reserve’s meeting results. The Nifty IT index slumped by nearly 3%, with major players like Infosys, TCS, and Tech Mahindra leading the downturn. This drop comes just before the Federal Reserve is set to announce decisions regarding interest rates, which is expected to have a significant impact on IT companies.
Profit Booking Amid High Valuations
The fall in IT stocks isn’t being seen as a correction, but rather profit booking at higher levels, according to Osho Krishna, Technical and Derivative Analyst at Angel One. He highlighted that many IT stocks had reached or were near their lifetime highs, prompting investors to book profits while remaining cautious about potential global risks. “Given the high levels of both technical and fundamental parameters of IT companies, profit booking is taking place,” Krishna explained.
All ten stocks in the Nifty IT index witnessed a drop, with shares of companies like Wipro, LTI Mindtree, and HCL Tech falling between 2% to 5%. Investors have shown increased caution in the run-up to the Federal Reserve’s meeting, which could result in key decisions impacting global markets, including IT stocks.
Strong Performance but Concerns Over Valuations
Despite the recent fall, IT stocks have performed well over the past few months, with several companies hitting 52-week highs just yesterday, 17 September. Companies like LTI Mindtree, Tech Mahindra, and Mphasis were among those touching new peaks. However, a recent report from Morgan Stanley raised concerns over high valuations and the potential for a slowdown in the US, a key market for Indian IT firms.
While Morgan Stanley has flagged the high valuations of key players like Infosys and TCS, it hasn’t advised investors to sell. However, it notes that the sector’s current valuations aren’t cheap, adding an extra layer of caution for those already invested heavily in IT stocks.
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