New-age tech stocks rally as endgame for rate hikes looks close

Traders are now expecting the US Fed to bring down the quantum of its interest rate hikes in the next monetary policy meeting while betting that the central bank will pause the rate increases by March 2023

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Shares of new-age technology companies listed in India jumped in line with their peers in the US as traders bet that the end is in sight for interest rate hikes by the US Federal Reserve following better-than-expected inflation print for October.

The US inflation rate slowed down to 7.7 percent in October as against an expectation of 7.9 percent in another sign that multi-decade-high inflation in the US shows signs of tapering off. Core CPI inflation in the US for October, too, came in at 6.3 percent as against an estimate of 6.5 percent.

Traders are now expecting the US Fed to bring down the quantum of its interest rate hikes in the next monetary policy meeting while betting that the central bank will pause the rate increases by March 2023.

US stocks, particularly those of technology companies, soared on the back of the October inflation print on hopes that the US Federal Reserve may soon pause on interest rate hikes and may start pulling rates lower in second half of 2023 because of a likely recession.

The NASDAQ Technology Index soared over 6 percent on November 10 following the inflation data.

Back home, investors bought into shares of Zomato, Paytm, PB Fintech, Paytm and Nykaa in the hope that future fall in interest rates will spur an upswing in their valuations.

Interest rates in the economy have an inverse relationship with valuations of technology stocks. Higher interest rates means lower present value of future cash flows of a technology company and vice versa.

In a discounted cash flow model, used by most analysts to value new-age technology companies, the interest rate is used as an indicator of opportunity cost that investor bears for investing in a stock as against keeping that money in their savings account.

With traders betting that interest rates in the US will go lower over the next 12 months, new-age technology are likely to become attractive to foreign investors as the present value of such stocks will rise in conjunction with the fall in rates.

At 10:15am, shares of Zomato, Nykaa, Paytm, PB Fintech and CarTrade were up 2-15 percent on the National Stock Exchange.