Infosys, HCL Tech, TCS stocks rally on cooling US inflation data

• Infosys, HCL Tech, TCS, and other IT company stocks rallied after data showed a cool down in US inflation.
• The Nifty IT index closed the day up 3.8%, while the broader Nifty50 index gained 1.8%.
• Earlier on Thursday, the tech-heavy Nasdaq Composite rallied 7.4% after US inflation data for October came in at 7.7%, down from 8.2% in September.

Infosys, HCL Technologies, Tata Consultancy Services (TCS) and other IT company stocks rallied on Friday after data revealed a cool down in US inflation. Infosys led the rally with 4% gains, followed by HCL Technologies and TCS. Both Infosys and TCS’ share prices are at over 2-month highs.

The Nifty IT index closed the day up 3.8%, while the broader Nifty50 index gained 1.8%. In the first hour of trade on Friday, the top five gainers were all Indian IT majors – with Infosys once again leading the pack.

Analysts say that the cooling US inflation had offered Indian IT stocks a much-needed respite. Tech stocks have been battered in the last few months on account of many factors – mostly external – like fears of recession fuelled by sharp rate hikes by the Fed, totaling 375 basis points in 2022 so far.

On Thursday, US inflation came in at 7.7% for October, down from 8.2% in September – leading to the biggest rally in US markets in two years. While the S&P 500 rose 5.5% on Thursday, Dow Jones rallied 1,200 points to end up 3.7%.

However, it was the tech-heavy Nasdaq Composite, which rallied 7.4%, that has also spurred the Indian IT stocks.

Cooling inflation in the US could lead to the US Fed not being as aggressive in raising interest rates as it has been so far, according to Avinash Gorakshakar, director - research, Profitmart Securities.

“Going ahead, cost pressures for tech companies as well as manufacturing companies are expected to soften, which will improve their profitability,” Gorakshakar added, explaining that the rally in US markets has had a rub-off effect on stocks of Indian IT companies.

Pricing in US, Europe markets a worry, but slowdown baked into prices

Worries of a slowdown in the key markets of US and EU have reflected in the stock prices of IT majors – Wipro’s share price has tumbled over 44% in 2022 so far, followed by a near 41% decline in Tech Mahindra’s shares.

During an earnings call in October, TCS CEO and MD Rajesh Gopinathan said he expected some softness in deal pricing in Europe.

“We are seeing an increasing caution in discussions with clients. We cannot say that we are totally insulated from it but as we said last quarter, we are vigilant of the environment and focussed on a set of customers,” he said.

However, according to a report by Kotak Institutional Equities, IT stocks have baked in a slowdown already. With US inflation cooling, analysts say this could be the positive news these companies need to see a revival in the sector.

Infosys CEO and MD Salil Parekh had struck a note of cautious optimism, saying, “Our view is we are ready in this macro environment for all types of client work. Whether it focuses on digital and growth, or costs.”

The IT major reported its best performance in terms of deal wins in the past seven quarters, with large deals worth $2.7 billion in the September quarter.

HCL Technologies, too, reported better-than-expected earnings and bagged a $625 million worth mega deal during the quarter.

“Most of the large cap Indian IT companies have their largest share of revenue coming from their clients based in the US, so this is positive news that might revive the sector further. (The sector is) already under hope of improving attrition rates and margins upcycle from here on,” said Anmol Das, head of research, Teji Mandi, a subsidiary of Motilal Oswal.

Here’s how the top five IT companies (by market capitalisation) have performed today:


Source: NSE, market price as on November 11, 2022


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