Nifty IT hits record high amid market volatility: What's fueling the surge?

The Nifty IT index surged to a record high of 46,002.65 on Thursday, fueled by a mix of favorable global and domestic factors. The index was up 1.4% from its previous close and maintained a gain of 0.78% at 45,667.65 by 3 PM. This marked a significant milestone for Indian tech stocks.

Key Drivers Behind the IT Stock Surge

Rupee Depreciation Boosts Earnings

The weakening Indian rupee against the US dollar has played a major role in boosting IT stock prices. The rupee slipped to 84.85, nearing an all-time low, due to foreign fund outflows and rising crude oil prices. G Chokkalingam, Founder of Equinomics Research Pvt Ltd, explained that the IT sector benefits from a weaker rupee, as many IT companies earn substantial revenue in dollars. A depreciating rupee results in higher profitability when these earnings are converted to Indian currency.

US Tech Rally Lifts Sentiment

The Nasdaq Composite's surge to a new record high, surpassing the 20,000 mark for the first time, has fueled optimism in the tech sector. This rally, combined with expectations of increased US tech spending, has raised sentiment for Indian IT stocks. Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares and Stock Brokers, pointed out that the alignment of the US November Consumer Price Index (CPI) report with economist forecasts has further bolstered hopes of a Federal Reserve rate cut, which would likely spur higher tech spending.

Expectations of Federal Reserve Rate Cut

Investor optimism has also been buoyed by the US CPI data for November, which confirmed an annual inflation rate of 2.7%. This has led to increased expectations that the Federal Reserve may reduce interest rates at its upcoming meeting. A rate cut is expected to stimulate the US economy, especially sectors like technology that thrive during periods of lower interest rates.

Outlook for the IT Sector

Experts believe that the IT sector will benefit from these global tailwinds in the coming months. With a recovery underway, the industry is expected to experience increased deal-making activity in late 2025. A bullish technical breakout in the Nifty IT index, as it surpassed a key trendline resistance, further suggests that gains could continue.

While the rupee's depreciation and favorable global factors provide immediate boosts, experts caution that core industry fundamentals remain unchanged. G Chokkalingam recommends staying defensive in the IT sector despite the positive short-term outlook.