IT Index Hits Three-Year Low Amid Weakened Earnings Outlook and Softening Demand

Indian IT Shares Plummet 3.7% Amid Weak Earnings Outlook and Uncertainty Over U.S. Interest Rate Trajectory

Indian IT shares came under heavy selling pressure on Tuesday, dragging the Nifty IT index down 3.7 percent to its lowest level since May 2023. The decline is attributed to a weak earnings outlook, concerns over slowing demand for traditional IT services, and uncertainty over the U.S. interest rate trajectory ahead of key inflation data.

The Nifty IT index has extended losses for the second straight session and emerged as the top sectoral loser on the NSE. Over the last two sessions, the index has fallen nearly 4.5 percent. All 10 constituents of the index were trading in the red, with Persistent Systems being the biggest laggard, falling up to 5 percent.

Other major IT companies, including Tata Consultancy Services (TCS) and LTIMindtree, also declined up to 4.27 percent and 3.96 percent, respectively. Infosys, Tech Mahindra, HCL Technologies, Wipro, and Coforge dropped between 2 percent and 4 percent.

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Analysts said sentiment remained weak after HSBC released a note on Tuesday, stating that fourth-quarter earnings and FY27 outlooks from India's top-tier IT firms largely missed expectations. The brokerage also noted that strong global spending on artificial intelligence could be crowding out spending on traditional IT services.

The comments came a day after OpenAI announced the launch of a new company backed by more than USD 4 billion to help organizations build and deploy AI. India's USD 315-billion IT sector, equivalent to around Rs 26.3 lakh crore, derives nearly 57 percent of its revenue from the U.S. market.

Investors were also cautious ahead of the U.S. consumer price index (CPI) data due later in the day, as the reading could offer cues on the Federal Reserve's future monetary policy path. Higher U.S. interest rates generally weigh on IT stocks as they raise recession risks and could lead clients in key overseas markets to cut technology spending and delay discretionary projects.

Selling pressure intensified further after major brokerages scaled back expectations of U.S. rate cuts this year. BofA Global Research and Goldman Sachs cited elevated inflation due to rising energy prices and continued strength in the labor market as reasons for their revised outlook.

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Global oil prices rose nearly 1 percent, adding to inflation concerns globally. Analysts said elevated crude prices could increase the likelihood of higher interest rates. In February, global IT stocks had also witnessed sharp selling after Anthropic launched new tools that heightened concerns about AI-led disruption in the data and professional services industry.

Comparison of IT Stocks