'Not a buying moment': Analysts wary of IT stocks amid Moody's US downgrade

Moody's downgrades US rating: Analysts see IT sector taking longer-than-expected to yield returns. Investors, they believe, should brace for near-term pressure

IT stocks to buy/sell:Investors holding information technology (IT) stocks in their portfolios seem to be stuck at crossroads. While US President Donald Trump's 90-day tariff pause and hard negotiations to strike deals with various countries, including India and China, lifted sentiment, Moody's downgrade of the economy’s credit ratings has clouded the outlook.

 

Moody’s downgrades US ratings

On May 16, Moody's Ratings downgraded the US' long-term issuer and senior unsecured ratings by one notch to ‘Aa1’ from ‘Aaa’. This ended the US’ top-tier sovereign credit status as the agency saw the States grappling with sustained fiscal deterioration, rising debt levels, and growing interest burdens. 

Analysts said Moody’s downgrade of US’ credit ratings, which follows similar actions by Fitch and S&P, hint at tighter government spending and potentially reduced discretionary IT budgets.

 Further, as bond yields (US Treasury yields) have spiked after the downgrade, the US economy’s growth rate will be further impacted by the higher borrowing costs.  ALSO READ | Moody's US downgrade deepens investor fears over rising fiscal risks 

"Given that there is a direct correlation between the US' GDP growth and tech spending by corporates, the prospects of IT companies look rather dim in the near-term. The single digit revenue growth rates of IT companies do not warrant their expensive valuations," cautioned VK Vijayakumar, chief investment strategist at Geojit Investments.