IT stocks demonstrated remarkable resilience on Monday, with Tech Mahindra, Coforge, Persistent Systems, Oracle Financial Services, Mphasis, LTIMindtree, and Infosys posting strong gains of up to 4.5% as the rupee hit a fresh record low. According to reports from CNBC TV18, Infosys has moved to the day's high, currently trading 2% higher, while TCS and HCLTech are also trading with gains of up to 1%. The Nifty IT index is the top sectoral gainer, trading with gains of over 2% and all constituents are trading higher. This surge has sparked a recovery in Indian equities, with the Nifty 50 index recovering over 250 points from the lows of the day.
The currency fell to a record low of 96.3 against the US Dollar on Monday, May 18, providing a significant boost to Indian IT companies. As per CNBC TV18, a weaker currency is generally positive for IT companies as most of their revenue comes from the US market, predominantly in US dollars along with other foreign currencies including the Euro. However, most of their employee costs or operational expenses are in local currency, thereby providing a boost to their margins. Analysts say that every 1% depreciation in the currency can boost the margins of these companies by 20 to 30 basis points. This marks the fifth consecutive session when the Indian rupee hit a fresh record low, with high oil prices sending bond yields soaring to record high levels.
According to Kotak Equities analysis reported by The Economic Times, IT firms are making reasonable headway in AI-driven opportunities, though it will not be enough to compensate for deflationary headwinds. The firm noted that offsetting growth headwinds amid high competitive intensity will be challenging, with margin headwinds being manageable by further flexing cost levers. This comes after the Nifty IT index plunged around 12% in one month, with IT heavyweights hitting fresh 52-week lows last week, even as global AI giants rallied to record highs.
The boost to IT stocks, coupled with recovery in index heavyweights HDFC Bank and Reliance Industries, has triggered a sharp recovery on the Nifty 50 index. As reported by CNBC TV18, market participants remain cautious amid fears that elevated crude prices may persist for a longer duration despite government measures to control volatility. The near-term rupee range is expected between 95.55–96.25, according to Jateen Trivedi, VP Research Analyst - Commodity and Currency. Investors this week will focus squarely on Nvidia's earnings on Wednesday for clues on the durability of the artificial intelligence-driven rally.
