Source: Moneycontrol
Indian IT shares plummeted on Monday, following the U.S. government announcing that it will continue with its reciprocal tariff policy “were not going away”, which worried investors enough to let them sell the shares of large IT companies.
The Nifty IT index declined 1.4% intraday to a low of 36,770.15 while the Mphasis share fell by 6.7%. Investments in Persistent Systems and HCL Tech declined by 1.8% apiece. Tech Mahindra dropped by 1.7% and Infosys was down 1.5%. Wipro slipped by 1.4%.
What’s Causing IT Stocks to Drop?
The decline followed a statement by US Commerce Secretary Howard Lutnick on Sunday that tariffs on goods from foreign countries would be continued even if they were somewhat struck down in court.
He said the US government would find new ways to keep tariffs in place if it needed to. Kevin Hassett, a chief economic advisor, also stated that he was confident courts would uphold the decision.
Less than a week ago, a U.S trade court ruled on many of these tariffs. The following day, a federal appeals court overturned the order. On Friday, President Donald Trump announced that tariffs on imports of steel would double from 25% to 50% beginning June 4.
How Do Tariffs in the U.S. Affect Indian IT Companies ?
The U.S. is the largest market for Indian IT services. A large number of Indian companies provide software and tech services to U.S. clients. Hence, if the U.S. economy slows down because of more tariffs, Indian IT companies may see slower projects with less revenue.
Experts are concerned about inflation in the U.S., as tariffs in many industries will increase prices. If this happens, the U.S. Federal Reserve will have to hold interest rates high to moderate inflation. With interest rates held high to control inflation, this will mean slower growth for the U.S. economy, and that is not good for outsourcing revenues for companies like Infosys, Tata Consultancy Services and Wipro.
In May, the 10-year U.S. Treasury yield was up 24 basis points to 4.4% already indicating that markets are concerned about the U.S. economy and a rising debt.
What are the next steps for IT Stocks?
Analysts report that there has been sustained pressure on Indian IT stocks and will continue given the ongoing trade tensions between America and other countries. Investors should remain vigilant to global updates especially USA updates given their impact on Indian tech firms.
The overall sentiment in the sector is cautious and markets await to hear from U.S. policies.
