Indian IT stocks experienced significant selling pressure on Thursday, with the Nifty IT index crashing 2.27% to 27,640 points before paring some losses. According to Indiablooms, Persistent Systems emerged as the worst performer, falling 3.56%, while HCL Technologies followed closely with a decline of 3.32%. Other major IT companies including Coforge, Oracle Financial Services Software, and Infosys also traded in negative territory, with Infosys shedding 2.37% in early trading. The selloff was compounded by hotter-than-expected US inflation and expectations of prolonged higher interest rates by the Federal Reserve. The weakness in Indian IT stocks mirrored a broader decline in global technology shares as investors turned risk-averse amid rising geopolitical tensions in the Middle East and concerns over the impact of surging crude oil prices on global economic growth.
The market decline was primarily driven by US inflation concerns, with the Consumer Price Index (CPI) increasing 4.2% in the 12 months ending in May, marking the largest gain since April 2023, according to the Labor Department's Bureau of Labor Statistics. As reported by Reuters, prices increased 0.5% on a monthly basis after climbing 0.6% in April. Traders are pricing in a more than 70% chance of a US rate hike by December, as inflation rises. The Indian IT companies derive a major portion of their revenue from the US economy, making them particularly vulnerable to inflation-driven Federal Reserve policy changes.
Oracle Financial Services Software shares declined 2.48% during early trading on Thursday, reflecting weakness in parent company Oracle Corp following negative investor reaction to the software giant's aggressive spending and fundraising plans tied to artificial intelligence expansion. The broader IT sector decline was compounded by lingering worries about AI-driven disruption and its potential impact on future technology spending from key US clients. With the IT sector heavily dependent on overseas markets, particularly the United States, any signs of weakness in global technology stocks tend to have a significant impact on Indian software exporters.
Despite the stock decline, Oracle reported better-than-expected fourth-quarter earnings and revenue. As reported by Moneycontrol, revenue rose 21% year-on-year in the quarter ended May 31, while net income increased to $4.22 billion from $3.43 billion a year earlier. The company also raised its adjusted earnings-per-share forecast for fiscal 2027 to $8.05, above analyst estimates. However, investor sentiment remains cautious due to concerns over the company's aggressive AI infrastructure spending plans.
Investor sentiment was weighed down by Oracle's plans to significantly increase spending on AI infrastructure and raise additional capital to fund expansion. According to reports from Moneycontrol, the company expects to raise $40 billion through debt and equity financing in fiscal 2027, including a previously announced $20 billion share-sale programme. Capital expenditure during the fourth quarter stood at about $16.5 billion, taking annual spending to $55.7 billion, above the company's earlier projection of $50 billion. The company also reported negative free cash flow of $23.7 billion for fiscal 2026, reflecting the scale of its ongoing investments in AI infrastructure.
