Challenges Facing India’s IT Sector
The IT industry in India is experiencing significant turmoil, contending with a damaging combination of factors including tariffs imposed by Trump, which are increasing the risk of a recession in the US, declining earnings expectations, and a wave of negative broker assessments. Currently, all ten stocks in the Nifty IT index are in a bear market, having fallen over 20% from their highs. Notable declines include major companies like TCS (-26%), Infosys (-25%), and HCL Tech (-27%) leading the decline. Moreover, Oracle Financial Services Software (OFSS) has plummeted by 43%. The Nifty IT index overall has dropped around 23% from its previous highs, making it the largest victim in India’s stock market this year.
Brokerage Reactions and Outlook
Compounding the sector’s difficulties, brokerages have begun lowering target prices and downgrading forecasts ahead of the upcoming Q4 earnings reports. They caution that sluggish demand from the US, alongside macroeconomic uncertainties and the repercussions of Trump’s tariffs, may plunge IT firms deeper into distress. “We maintain our ‘downgrade’ stance on IT,” stated Axis Securities. “A decline in overall IT expenditure in the US market, coupled with potential delays in discretionary spending, poses a downgrade risk in the coming quarters. Current circumstances increase the possibility of further downgrades, prompting us to recommend reducing investments in the IT sector.”
Indirect Impacts of Tariffs
Although Indian IT services appear to have avoided direct hits from Trump’s broad tariff increases, which impose a 26% duty on numerous exports, the sector is nonetheless affected by indirect impacts—chiefly, the threat of a US economic slowdown. “The real loss will manifest in US discretionary spending, which could have medium-term ramifications for the economy if tensions continue to escalate,” remarked Venugopal Garre from Bernstein. Jefferies shared similar concerns, indicating that the diminished US GDP could adversely affect outsourcing demand.
Concerns Ahead of Q4 Earnings
The IT sector is approaching the Q4 earnings period clouded by pessimism. With TCS set to announce results on April 10, analysts are anticipating a weak quarter with revenue declines and cautious corporate forecasts. “We’re expecting sequential revenue drops for all major IT companies in Q4FY25,” stated Kotak Institutional Equities. “Factors like seasonal weaknesses, fewer billing days, and overarching macro uncertainties will press on the sector.”
Downgrades and Stock Reactions
The recent downturn has triggered a series of downgrades from leading brokerages. For example, JP Morgan downgraded HCL Tech due to disappointing Q4 outcomes, muted deal acquisitions, and macroeconomic uncertainties. While Axis Securities downgraded the entire IT sector in light of heightened risks from Trump’s trade policies, BNP Paribas reduced its earnings estimates for FY26-27 by 1.5% – 10%. Conversely, not all analysts have taken a bearish stance; Nuvama notes that the current risk-reward ratio appears attractive for selected large-cap stocks like TCS and Infosys.
Future Perspectives: Strategy and Recovery
As IT stocks experience significant pressure, investors are left weighing whether this represents a buying opportunity or if further declines are imminent. JP Morgan advocates for a selective approach, favoring stocks like Infosys and Coforge. BNP Paribas highlights TCS as a stable investment, with mid-cap company Persistent also identified as having strong growth potential. Looking ahead, the future performance of IT stocks will significantly depend on US economic conditions, Federal Reserve policy, and corporate spending trends. As HSBC emphasizes, “We anticipate a prolonged period of modest returns for the sector, mirroring the mid-single-digit returns seen from 2014 to 2018.”
(Disclaimer: The recommendations, opinions, and views expressed by experts are their own and do not necessarily represent the views of The Economic Times.)
