Indian IT stocks face fresh selloff on weak US economic data; Nifty IT tanks over 1%

Indian stock market: After a two-day relief rally, Indian technology stocks resumed their losing streak on Friday, March 6, tracking the 2.6% slide in the Nasdaq Composite overnight. 

Mounting global trade tensions and weak economic data from the U.S., the world’s largest economy, are signaling weakness and unsettling investor sentiment, as this region accounts for the majority of revenue for Indian software companies. 

Amid this negative sentiment, the Nifty IT index tumbled 1.3% in early morning trade today, reaching 37,625 points. While the index recovered in the following hours, it remains 1.03% down as of 2:00 p.m.

Eight of the 10 constituents of the index traded in the red, with Infosys emerging as the top loser, down 2.1%, followed by Mphasis, HCL Technologies, LTIMindtree, L&T Technology Services, and Tech Mahindra, all trading with losses between 1% and 2%.

Softening economic data, rising tariff uncertainty weigh on Indian IT stocks

A report released on Thursday revealed that the U.S. trade deficit swelled to a record $131.4 billion in January, up from $98.1 billion a month, as imports surged 10% ahead of the imposition of tariffs. In other economic news, U.S. job cuts in February reached their highest monthly total since July 2020, driven by government workforce reductions, CNN reported, citing Challenger, Gray & Christmas’s latest monthly job cuts report released Thursday.

Efforts by the Trump administration to slash spending and shrink the government have resulted in unprecedented layoffs of federal workers, which experts believe could pose a risk to consumer spending, the main engine of the economy.

Tariffs on imports, already imposed or planned by President Donald Trump in his first month in office, have eroded consumer and business confidence. Fears are mounting that tariffs, which are a tax, will drive up the prices of goods and limit the Federal Reserve’s ability to continue cutting interest rates. U.S. economic growth has already slowed in the fourth quarter of the last calendar year.

Meanwhile, a report released on Wednesday showed that U.S. private sector hiring collapsed last month.

Forex headwinds

The economic concerns are also driving the U.S. dollar lower, which has dropped 3% over the last four trading sessions, further weighing on sentiment. This led investors to shift towards other safe-haven currencies, including the Japanese yen and Swiss franc.

Indian IT companies earn a significant portion of their revenue in U.S. dollars, and when the dollar weakens against the Indian rupee, the same revenue translates into fewer rupees, which will impact on earnings.

According to experts, the rising economic uncertainty is also influencing Trump’s tariff decisions, as he recently granted temporary tariff exemptions for Canadian and Mexican goods covered under the North American trade agreement (USMCA) until April 2.

However, Thursday’s tariff exemptions excluded those imposed on China. China is standing firm, stating that it is prepared to fight “any type of war” with the U.S. Trump is poised to enact “reciprocal tariffs” on April 2 on foreign nations that impose import taxes on U.S. goods, with India being one of the countries exposed to these tariffs.

Meanwhile, February’s nonfarm payrolls report will be the next big catalyst on investors’ radar, offering further insight into the health of the economy.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.