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Information technology stocks are likely to continue their role as defensive plays as the market prices in renewed certainty that the US Federal Reserve will indeed cut its bond-buying stimulus programme by $10 bln a month. The Federal Reserve on Wednesday announced its second cut to the bond-buying programme. The programme, which originally involved pumping in liquidity of $85 bln, has now been reduced to $65 billion per month. The markets, which had been hoping against hope that the tapering would not happen at the rate of $10 bln per month, fell on Thursday and Friday.
Given that nearly all the large- and mid-cap IT companies have already reported their results, their performance this week will again be determined by the direction of the overall market. This second round of QE tapering has had a negative impact on market sentiments and while it was more or less factored in, the positive rounds of economic indicators from the US provide further indication that the cutback in stimulus spending will continue throughout the year. In the week gone by, stocks like Tata Consultancy Services and Infosys fell less than the overall market, and the same is expected to continue.
In addition, comments about a healthy US economy would also aid sentiment around IT companies, which get most of their revenue from the market. One of the outperformers last week was HCL Technologies, which rose 3.6% in a negative market, and valuations were getting stretched. HCLTECH appears to be long heavy as stock has gone up substantially with rise in open interest. Though there are no signs of exhaustion, counter is in overbought zone.
Information technology stocks are likely to continue their role as defensive plays as the market prices in renewed certainty that the US Federal Reserve will indeed cut its bond-buying stimulus programme by $10 bln a month. The Federal Reserve on Wednesday announced its second cut to the bond-buying programme. The programme, which originally involved pumping in liquidity of $85 bln, has now been reduced to $65 billion per month. The markets, which had been hoping against hope that the tapering would not happen at the rate of $10 bln per month, fell on Thursday and Friday.
Given that nearly all the large- and mid-cap IT companies have already reported their results, their performance this week will again be determined by the direction of the overall market. This second round of QE tapering has had a negative impact on market sentiments and while it was more or less factored in, the positive rounds of economic indicators from the US provide further indication that the cutback in stimulus spending will continue throughout the year. In the week gone by, stocks like Tata Consultancy Services and Infosys fell less than the overall market, and the same is expected to continue.
In addition, comments about a healthy US economy would also aid sentiment around IT companies, which get most of their revenue from the market. One of the outperformers last week was HCL Technologies, which rose 3.6% in a negative market, and valuations were getting stretched. HCLTECH appears to be long heavy as stock has gone up substantially with rise in open interest. Though there are no signs of exhaustion, counter is in overbought zone.
