The Indian stock market closed lower on August 26, with the BSE Sensex falling 183.15 points, or 0.24%, to 77,472.94 and the Nifty 50 declining 126.80 points, or 0.52%, to 24,207.75. According to Reuters reports, the decline deepened in the closing auction, with the Nifty 50's indicative close down by as much as 1.4%. The market failed to build on the previous day's gains and ended lower on the first day of the September F&O series in a rangebound session. The Sensex had opened at 77,892.10 and touched an intraday high of 77,986.84 before giving up gains. The broader markets showed mixed performance with the Nifty Midcap 50 and Nifty Midcap 100 falling 0.17% and 0.10% respectively, while the Nifty Smallcap 100 gained 0.81%. Ten of the 16 major sectors fell during the session, with technology and Reliance Industries leading the decline.
The IT sector experienced a severe collapse with the Nifty IT index tumbling over 2% to hit a day's low of 30,634.45, down 2.07% from its last close. According to Business Standard, all constituents of the IT index traded in the red, with Persistent Systems emerging as the biggest loser with a 4.4% fall. Other major IT stocks including L&T Infotech, Infosys, Mphasis, Wipro and Coforge shed over 2% each, while TCS, Tech Mahindra, HCL Tech and OFSS were down 1%. The sector's weakness was attributed to Fed Chair Kevin Warsh's remarks that inflation remains uncomfortably high, which markets read as hawkish. As per INVasset PMS business head Harshal Dasani, the probability of a hike now stands at 59% according to the CME FedWatch tool, up from 47% a week ago. He noted that IT multiples compress everywhere when the US rates reprice higher as client-budget fears surface. The latest shift in rate expectations has coincided with a decline across the IT stocks, with markets now pricing in a more than 50% chance of a rate increase at the Fed's September meeting after Warsh reiterated the central bank's focus on bringing inflation back to its 2% target.
The derivatives data reveals concerning short positioning in IT stocks, with fresh short positions emerging in several major players. According to latest F&O data, Persistent Systems futures fell 4.23%, while open interest increased 20.93%, indicating fresh short positions being built. KPIT Technologies futures declined 3.08%, with open interest rising 40%, and Tata Elxsi futures fell 3.15%, while its open interest increased 84%. The rupee also opened 11 paise lower at ₹95.49 against the US dollar, compared with its previous close of ₹95.38, adding to the sector's challenges. The US interest-rate outlook is closely watched by Indian IT stocks because a large part of their business comes from US clients and the sector's valuations are sensitive to changes in global interest rates.
The IT sector continues to face pressure from AI deflation concerns that are expected to impact Indian IT companies the worst in FY2027. According to Business Standard, Avinash Gorakssakar from Avinash Mentor Research added that apart from rate hike fears, AI fears are an overhang on the sector. Most of the Indian IT companies are services-driven, and when companies like Nvidia perform better on AI front, service-related models are expected to grow slowly. So far this month, the IT index remains unchanged, in contrast to July when it recorded its best gain in six months following a 17% rise. The US market remains clouded with uncertainty, with most of the order wins not yet coming for larger companies, adding to the sector's challenges.
According to technical analysis reports, the Nifty formed a Dark Cloud Cover pattern on the daily timeframe, raising the possibility of a bearish move in the coming days. However, the broader trend remains positive as the index continues to trade within a rising channel. The RSI has once again entered a bearish crossover, with a fall below 24,130 potentially triggering a serious correction, potentially dragging Nifty towards 23,900 and 23,700. On the higher end, a rock-solid resistance is placed at 24,350, with only a sustained move above 24,350 changing the current perception. The current market texture is non-directional, making level-based trading the ideal strategy for day traders. More than 140 stocks touched 52-week highs including Anthem Biosciences, Divis Labs, Oracle Fin Services, Laurus Labs, PNB Housing Finance, TVS Motor, Ipca Labs, One 97 Communications (Paytm), Vodafone Idea, AU Small Finance Bank, United Spirits, among others. Among individual stocks, DCB Bank shares rose 3.6% on reports of a potential capital infusion from private equity firms, while Advait Energy Transitions gained 3.3% after securing a ₹134.63 crore contract.
