The Indian tech stocks are under pressure in Monday’s trade following the huge sell-off in Asian markets as well as US futures plunged on Sunday due to tariff turmoil. The Nifty IT was the major loser among the sectoral indices, falling 5.5% to 31,675 level.
The IT stocks for the past two sessions were on a downward trajectory on the back of an economic slowdown in the US due to recessionary fears. The tech stocks have also been seeing low growth in large deal wins, another worrisome point.
Four reasons why tech stocks are under pressure
Technical signals for Nifty IT weak
“Nifty IT has broken below the widening wedge pattern forming a weekly Marubozu candle marking the second biggest weekly fall since March 2020. Also, the index has broken below the 200-week moving average (WMA) for the first time since March 2020. In the past, the Nifty IT index has closed below 200 WMA seven times in the last 15 years and on each of such occasions, it took an average of five weeks for the index to move back above the average,” said Anand James, Chief Market Strategist at Geojit Investments.
“One interesting fact is that six out of the seven times when the index broke below the 200 WMA, it saw an average 12% upside in the next three months,” added Anand James.
Nasdaq plunges almost 6% in a session
The tech sector remained under pressure for the second consecutive session in the US as well. The tech-heavy, Nasdaq Composite lost 5.8% to 15,587.79, following a drop of 6% on Thursday. The US index has declined by 22% from its peak, which it reached in December, indicating a bear market in technical terms.
The Dow Jones Industrial Average plunged 2,231.07 points, or 5.5%, to 38,314.86, the biggest decline since the Covid-19 pandemic. This follows a 1,679-point fall on Thursday. The S&P 500 plummeted 5.97% to 5,074.08 after shedding 4.84% on Thursday.
Global recession to impact demand
Investors are worried that the US President has ignited a global recession, which will toll on demand as it will raise inflation, which will slow down the growth. The IT sector was already grappling with high US inflation, which impacted its revenue and bottom line in the previous few quarters. Also, the hopes for Fed rate cuts are unlikely to happen anytime soon.
April historically weak month for IT
The week would be interesting for the Indian tech stocks as the sector bellwether, Tata Consultancy Services, will kick off the Q4 earnings season. According to James April has not been a good month for the IT sector post-Covid.