US-Iran Tensions Fuel Global IT Stock Decline Amid Fears of Subsea Cable and Internet Disruptions

Nifty IT Dips 1.5% Amid Concerns Over Undersea Internet Cable Security

On March 30, the Nifty IT index declined by 1.5%, as investors grew anxious about the security of undersea internet cables, particularly those passing through the Strait of Hormuz. This critical shipping channel, which accounts for approximately one-third of India's westward internet traffic, is also a key pathway for digital connectivity.

The Oracle Financial Services Software, LTIMindtree, MphasiS, and Coforge shares fell by 1-3% on the Nifty IT index, along with HCL Technologies, Infosys, Persistent Systems, Tech Mahindra, and Wipro. In contrast, TCS was the sole stock to rise in the index.

According to reports, Iran and its affiliated groups have threatened to target undersea internet cables in the Red Sea and the Gulf of Hormuz, which collectively handle a significant volume of traffic between Europe, Asia, and the Middle East. Approximately 17% of global internet traffic is managed by systems in the Red Sea, while the Gulf-Hormuz area is home to crucial cables such as AAE-1, FALCON, Gulf Bridge, and Tata's TGN-Gulf, vital for India's international connectivity and cloud infrastructure.

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Experts warn that interruptions in the Red Sea corridor can cause considerable slowdowns in data traffic, impacting India as well as other areas linked to these networks. Even a small number of severed cables can lead to prolonged congestion and rerouting, rather than a straightforward failover.

However, some analysts believe that an immediate "internet shutdown" is unlikely, instead predicting increased volatility for Indian IT stocks, heightened margin and operational risks, and a medium-term focus on capital expenditures in networks and data centers.

Technical Analysis

According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, Nifty IT has exhibited relative strength over the past couple of weeks, ending in the green for the second consecutive week despite broad-based market weakness. The index faces immediate resistance around the 30,000 mark, which coincides with the 20 DEMA. A decisive breakout above this level could trigger broad-based buying.

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Key Stocks

• TCS
• Tech Mahindra
• HCLTech

Support and Resistance Levels

• 28,000: Strong long-term support
• 30,000: Immediate resistance