- 19 Sep 2024
- ICICI Securities
FED CUTS RATE BY 50 BPS, INFLATION CLOSER TO ITS 2% TARGET; IT SERVICE SECTOR OUTLOOK MIXED IN NEAR TERM
News: The US Federal Reserve announced its sixth policy decision for 2024 on September 18 after a two-day Federal Open Market Committee meeting and slashed the benchmark interest rate by 50 bps to 4.75%-5% for the first time in four years, in line with Street estimates. The Fed's policymakers also signalled for an additional half-point cut in their key rate before the end of the year and envision four more rate cuts in 2025 and two in 2026.
Views: The move is expected to boost discretionary spending, with tech budgets likely to increase, benefiting IT services companies in the medium-long term. The final impact on the IT sector may become evident by H1FY26. However, despite the positive outlook for future spending, investor sentiment in the IT sector has weakened compounded by Accenture’s decision to delay staff promotions to June, reflecting a challenging consultancy environment dampening optimism. A demand recovery is expected only three to six months after this first US rate cut. Factors like global economic concerns and a weakening US dollar may add near term pressure on the sector's performance.
Impact: Neutral