These IT companies derive a major portion of their revenue from the US economy. Hence, higher inflation can increase expectations of reduced consumer spending in the country, which in turn can hurt these companies’ margins. Also, rate cut decisions affect the dollar, which in turn impacts IT stocks.
IT shares have already seen a sharp decline this year so far as launches of new and advanced artificial intelligence tools spooked investors about the possibility of demand fading for India’s much-touted IT services companies.
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Higher energy prices will push up US inflation
The Federal Reserve on Wednesday kept its policy rate unchanged in the range of 3.50% to 3.75%, and projected higher inflation, steady unemployment and a single reduction in borrowing costs this year. “In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy,” Powell said in a press conference after the Fed’s 11-1 decision to maintain its benchmark overnight interest rate unchanged.
“The thing I really want to emphasise is that nobody knows: the economic effects could be bigger, they could be smaller; they could be much smaller or much bigger; we just do not know,” Powell said. His comments came on the back of soaring oil prices, with Brent crude rallying over $110 per barrel last week as the US war with Iran led to the prolonged closure of the Strait of Hormuz.
Fed policymakers now expect inflation to stand at 2.7% at the end of the year, higher than the 2.4% projected in December. This reflects the fallout from the spike in global oil prices that followed the start of the war in the oil-rich Middle East. The higher inflation projections are also due to stickier tariff-driven inflation slowing progress towards the Fed’s 2% inflation goal, Powell said.Economic growth was upgraded slightly to 2.4% for 2026 versus 2.3% in December, and the projected unemployment rate was unchanged at 4.4%. “The status quo on policy rates was widely anticipated in the Mar 2026 FOMC meeting. As per the SEP, the spike in inflation is partially due to tariffs and the rest due to the oil shock, which will be temporary in nature. The Fed chose not to overreact to the oil shock because of the conflict in the Middle East due to heightened uncertainty,” JM Financial said.
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Wall Street crashes
Notably, Wall Street crashed after higher inflation projections and no rate cuts in the US. The S&P 500 declined 1.36% to end the session at 6,624.7, its lowest closing level in nearly four months. The tech-heavy Nasdaq declined 1.46%, while the Dow Jones Industrial Average fell 1.63%.
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