On Wednesday, July 2, the Nifty IT index outshone all other sectoral indices, rising sharply during early trade before paring some gains, as investor optimism around upcoming US Federal Reserve interest rate cuts, India-US trade relations, and strong earnings outlook buoyed top IT names like Infosys, TCS, and Mphasis.

Despite a broadly cautious market environment, the Nifty IT index surged over 1.7% at open and was still trading 0.6% higher by 10:40 a.m., powered by renewed risk-on sentiment in the tech space.

IT Stocks Shine Despite Market Gloom

Even as the broader markets showed signs of fatigue following geopolitical uncertainties and trade-related concerns, IT stocks bucked the trend:

• Infosys, Mphasis, TCS, and Coforge gained up to 1.2%

• Oracle Financial Services Software was the only laggard on the index

The rally is driven by two key factors: expectation of US interest rate cuts and optimism over sales growth due to easing US-India trade tensions.

US Fed Rate Cut Expectations Fuel Optimism

The sectoral rally gained further steam after Goldman Sachs revised its expectation for a Federal Reserve interest rate cut from December to September 2025. The global investment bank believes that President Trump's new round of tariffs will have a lower inflationary impact, thus clearing the way for earlier monetary easing.

In addition to Goldman Sachs:

• Citigroup and Wells Fargo foresee a total of 75 basis points (bps) of rate cuts in 2025

• UBS Global Research is even more aggressive, projecting a 100 bps reduction within the year

While forecasts vary, all major Wall Street banks agree that the Fed's rate-cutting cycle will likely commence in September, a scenario that bodes well for Indian IT services companies that derive a significant portion of revenue from the US.

Why Rate Cuts Matter for Indian IT Firms

IT firms like Infosys, TCS, Mphasis, and Wipro have deep exposure to the US economy, with the bulk of their revenues tied to offshore software services, digital transformation projects, cloud, and consulting services.

Here’s how rate cuts help:

• Lower interest rates increase liquidity in the US economy

• US-based companies may ramp up IT spending and accelerate outsourcing deals

• New deal wins and revenue growth become more likely in a loose monetary environment

Thus, rate cuts directly improve demand visibility for Indian IT players and signal topline acceleration over the next few quarters.

India-US Trade Deal Optimism Adds Another Boost

President Donald Trump’s statement on progress in a potential India-US trade agreement added a further layer of positivity to Wednesday’s IT stock rally. Markets welcomed his remarks about the two nations being “close to a deal with much less tariffs”, which triggered positive sentiment across sectors heavily reliant on US trade—particularly IT exports.

Reduced tariffs and stable trade relationships could further improve outsourcing prospects for Indian IT majors by:

• Ensuring predictable regulatory environments

• Lowering operational friction and compliance costs

• Enhancing client confidence in long-term offshore partnerships

The news has come at an opportune time, especially when sector earnings are just around the corner, amplifying investor interest.

IT Sector Rebound After Months of Underperformance

Over the past six months, Nifty IT index had corrected by over 12%, owing to:

• Global uncertainty triggered by Trump’s tariff measures

• Weak macros and slow decision-making in client geographies

• Margin pressures due to rising manpower costs

However, the July 2 rally signals a potential trend reversal, especially if:

• Rate cuts materialize as predicted

• The India-US trade deal gets finalized

• Q1 FY26 results show margin stability and new deal wins

Brokerage houses and analysts are now closely monitoring deal pipelines, commentary on discretionary tech spends, and guidance revisions in upcoming earnings calls from the IT bellwethers.

IT Stocks to Watch Going Forward

Given the macro triggers, the following stocks remain under close investor scrutiny:

• Infosys (INFY) – With a strong deal pipeline and digital services demand

• TCS – Known for stability and large-scale transformation deals

• Mphasis – Mid-cap exposure to BFSI and emerging tech sectors

• Coforge – Momentum in travel and insurance verticals

• HCLTech – Strong engineering and cloud services revenue

• LTIMindtree – Consolidation benefits and cross-client opportunities

As investor interest returns to defensives and export-oriented stocks, Nifty IT may outperform the broader market in the near to medium term.

Conclusion: Momentum Building for Nifty IT

The sharp rally in Nifty IT stocks on July 2 may be more than just a blip. With rate cut optimism, positive trade signals from the US, and a strong earnings season expected, the sector appears well-placed to recover from its recent underperformance.

Investors are advised to keep an eye on:

• Fed's rate policy in September

• India-US trade deal outcome

• Earnings commentary from IT firms starting mid-July

If all three triggers align positively, IT stocks could regain leadership in the broader market, especially during periods of global uncertainty.

The Upcoming IPOs in this week and coming weeks are Smarten Power Systems, Glen Industries, Travel Food Services, Anthem Biosciences, Chemkart India, Meta Infotech, Happy Square Outsourcing Services, Cryogenic OGS.

The Current active IPO are Crizac, Silky Overseas, Vandan Foods, Pushpa Jewellers, Cedaar Textile, Marc Loire Fashions.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.