IT & Tech Sector Analysis – Global Nasdaq Correlation & Rupee-Dollar Impact
By CapitalKeeper | Beginner’s Guide | Indian Equities | Market Moves That Matter
Day 4: IT & Tech Sector – Global Correlation with Nasdaq and Rupee-Dollar Trends
The Information Technology (IT) and Tech sector has long been the crown jewel of the Indian economy. From pioneering outsourcing models in the 1990s to becoming global leaders in digital transformation, Indian IT companies have not only shaped the country’s growth but also positioned themselves as vital players in the global economy. With exports accounting for a large portion of revenue, the sector’s movements are closely tied to international benchmarks, especially the Nasdaq in the U.S., and macroeconomic trends like the rupee-dollar exchange rate.
In this blog, we’ll break down the dynamics of the IT & Tech sector, its correlation with the Nasdaq, and how currency fluctuations influence profitability. We’ll also analyze current trends and highlight what investors should watch for.
The Backbone of Indian IT & Tech
India’s IT & Tech sector contributes nearly 8% of GDP, employing over 5 million professionals. The sector spans multiple verticals:
- Software Services: Infosys, TCS, Wipro, HCL
- Product Development: SaaS players like Zoho, Freshworks
- Global IT Outsourcing: Accenture, Cognizant (with Indian delivery centers)
- Emerging Tech: AI, Cloud, Data Analytics, and Cybersecurity solutions
The revenue split is highly export-driven, with over 60-70% coming from North America and Europe, making the sector sensitive to global indices and economic cycles.
Correlation with Nasdaq
The Nasdaq Composite Index in the U.S. is heavily weighted toward technology companies—think Apple, Microsoft, Google, Amazon, Meta, and Nvidia. Since Indian IT companies earn much of their revenue from U.S. clients, the Nasdaq acts as a leading indicator for the Indian IT sector.
Why this correlation matters:
- Demand Sentiment:
When U.S. tech companies report strong earnings, it indicates robust IT spending, which translates to more outsourcing and contracts for Indian IT giants. - Investor Psychology:
A rally in Nasdaq often boosts sentiment in Indian IT stocks like TCS, Infosys, and Wipro. Conversely, Nasdaq corrections can drag Nifty IT lower. - Valuation Alignment:
Global investors compare valuation multiples (P/E, P/B) of Indian IT firms with U.S. counterparts. A tech rally abroad raises the risk appetite for emerging market IT stocks. - Digital Transformation Spending:
During bull markets, global corporations increase investments in cloud computing, AI, and automation. This directly benefits Indian IT providers.
Example:
In 2023–2024, the Nasdaq surged on AI-led optimism (driven by Nvidia and Microsoft). This lifted Indian IT stocks despite muted domestic earnings, showing how global cues can outweigh local fundamentals.
Rupee-Dollar Impact
The rupee-dollar exchange rate is another crucial driver of IT sector profitability. Since most revenues are billed in dollars and a large chunk of expenses (salaries, operations) are in rupees, currency depreciation benefits IT companies.
- Weak Rupee (e.g., ₹85/$) → Higher margins for Infosys, TCS, and HCL, as the same dollar revenue converts into more rupees.
- Strong Rupee (e.g., ₹80/$ or below) → Margin pressure, as the dollar revenue translates into fewer rupees.
Key Dynamics:
- Hedging Strategies
Most IT majors hedge forex risk, but sudden moves in the rupee-dollar can still impact quarterly earnings. - Margin Sensitivity
Typically, every 1% depreciation in the rupee boosts IT sector operating margins by 30–40 basis points. - U.S. Fed & Inflation Trends
Fed rate hikes strengthen the dollar, indirectly boosting Indian IT profits. Conversely, a weak dollar phase (risk-on global sentiment) can reduce the rupee conversion benefit.
Defensive Yet Volatile
The IT sector has historically been considered defensive, providing steady cash flows and high dividend payouts. Even in global slowdowns, outsourcing demand often continues as foreign firms cut costs by shifting work to India.
But in recent years, IT has become more cyclical due to:
- Dependency on discretionary tech spending (cloud migration, AI).
- High sensitivity to Nasdaq volatility.
- Wage inflation for skilled tech talent.
Case in Point:
During the pandemic (2020), IT acted defensively and rallied on digital adoption. But in 2022–2023, fears of U.S. recession and Nasdaq correction triggered sharp falls in IT valuations.
Technical Analysis: Nifty IT & Top Stocks
Nifty IT Index
- Key Levels: Support at 36,000–36,500; resistance at 39,500–40,000.
- Trend: Correlated with Nasdaq 100. Traders use Nasdaq futures overnight to anticipate Nifty IT opening moves.
- Indicators: RSI above 60 signals bullish momentum, MACD crossover is a strong entry signal.
Stock Highlights:
- Infosys (INFY)
- Technical: Trading in 1,450–1,650 zone. Breakout above 1,650 can target 1,750+.
- Fundamental: Strong client base, leadership in digital services.
- TCS
- Technical: Consolidating near 3,800. Above 3,950 = fresh breakout.
- Fundamental: Resilient margins, strong cash reserves, consistent buybacks.
- HCL Tech
- Technical: Holding support near 1,500.
- Fundamental: Growth in engineering R&D, strong U.S. exposure.
- Wipro
- Technical: Struggling below 500; needs breakout for momentum.
- Fundamental: Lagging peers, but restructuring could aid revival.
Fundamental Outlook
- Valuations: Indian IT trades at 20–25x forward earnings, lower than U.S. peers but higher than historical averages.
- Order Book: Deal wins remain robust; large multi-year contracts provide visibility.
- Risks: U.S. recession fears, delayed client spending, automation reducing traditional outsourcing.
- Opportunities: AI, cybersecurity, and cloud services could open multi-billion-dollar growth avenues.
Investment Strategy
- Long-Term Investors
- Favor leaders like TCS, Infosys, and HCL Tech.
- Focus on dividend yield + steady growth.
- Use Nasdaq dips as entry opportunities.
- Swing Traders
- Track Nasdaq futures and rupee-dollar intraday moves.
- Play Nifty IT index for momentum.
- Thematic Investors
- Allocate to IT-focused mutual funds or ETFs.
- Blend defensive large caps with high-growth SaaS/AI players.
Conclusion
The IT & Tech sector in India is a globally integrated story. Its performance is not only tied to the Nasdaq but also to the rupee-dollar trend, making it one of the most unique sectors in the Indian market. While challenges like global slowdowns and automation risks persist, the sector continues to offer resilience, innovation, and global leadership.
For investors, the key is to watch Nasdaq cues, currency moves, and deal pipelines. The sector may remain volatile in the short term, but in the long run, India’s IT dominance will continue to be a cornerstone of its economic growth.
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Ranjit Sahoo
Founder & Chief Editor – CapitalKeeper.in
Ranjit Sahoo is the visionary behind CapitalKeeper.in, a leading platform for real-time market insights, technical analysis, and investment strategies. With a strong focus on Nifty, Bank Nifty, sector trends, and commodities, she delivers in-depth research that helps traders and investors make informed decisions.
Passionate about financial literacy, Ranjit blends technical precision with market storytelling, ensuring even complex concepts are accessible to readers of all levels. Her work covers pre-market analysis, intraday strategies, thematic investing, and long-term portfolio trends.
When he’s not decoding charts, Ranjit enjoys exploring coastal getaways and keeping an eye on emerging business themes.
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