IT Stocks Retreat as Infosys Salary Hike Triggers Fresh Cost Concerns
Indian information technology stocks came under pressure on December 26 after Infosys announced a hike in entry-level salaries for fresh graduates, reviving investor concerns around cost structures at a time when global demand visibility remains uneven. The move led to profit booking across the sector, pushing the Nifty IT index down 0.86 percent to 38,638.80, extending losses for the third consecutive session.
Shares of several frontline and mid-tier IT companies declined, even as analysts stressed that wage hikes alone are unlikely to derail the sector’s long-term prospects. Market participants instead remain focused on deal wins, margin resilience and demand trends from key overseas markets, particularly the United States.
Infosys Salary Revision Puts Talent Costs Back in Focus
Infosys recently raised entry-level compensation, offering packages of up to Rs 21 lakh per annum for specialised technology roles. The revision is aimed at attracting high-quality freshers in areas such as artificial intelligence, cloud computing and advanced engineering, where competition for talent remains intense.
Kalp Jain, Research Analyst at INVasset PMS, said the move reflects broader industry dynamics rather than a one-off decision.
“This salary hike underscores the intensifying competition for digital talent. Firms are trying to attract skilled professionals in AI, cloud and engineering roles where demand continues to grow,” Jain said.
However, he added that overall salary growth across the IT sector is moderating, with companies attempting to balance cost discipline with retention needs.
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Margins, Not Salaries, Will Decide the Sector’s Near-Term Trajectory
While wage hikes raise questions around operating margins, analysts believe they are unlikely to materially alter sector valuations in the near term.
Siddharth Maurya, Founder and Managing Director at Vibhavangal Anukulakara, said investor focus remains firmly anchored on earnings visibility and demand recovery.
“Indian IT stocks are toggling between a volatile mix of earnings momentum, global demand and talent costs. Investors continue to track deal pipelines, margins and macro signals rather than reacting sharply to compensation changes,” Maurya said.
According to him, salary increases at the entry level form only a small part of overall cost structures and are unlikely to meaningfully dent profitability if demand improves.
AI-Led Demand Keeps Long-Term Optimism Intact
Despite near-term volatility, analysts believe the long-term outlook for Indian IT services remains constructive, driven by accelerating adoption of artificial intelligence and digital transformation initiatives.
Dhanshree Jadhav, Analyst – Technology Services at Choice Institutional Equities, said Infosys is positioning itself early for the next phase of growth.
“The global IT industry is at an inflection point where sustained growth will increasingly be driven by upfront investments in talent and AI-led infrastructure. Infosys’ move aims to curb attrition and attract high-quality freshers at a time when entry-level salaries across the sector have remained largely stagnant,” she said.
She added that higher entry pay could improve the company’s competitiveness against startups and global technology firms that have been aggressive in hiring specialised talent.
Visa Policy Changes Add Another Layer of Uncertainty
The sector’s weakness this week has also been influenced by policy developments in the United States. Earlier, IT stocks declined after the Donald Trump-led administration announced changes to the H-1B visa selection process, replacing the traditional lottery with a weighted system favouring higher-paid and more skilled workers.
A US Department of Homeland Security release said the change aligns with broader policy measures, including a rule requiring employers to pay an additional $100,000 per visa as a condition of eligibility.
Analysts said that while the impact on large Indian IT firms may be limited, the announcement has added to near-term uncertainty.
Top IT Losers Highlight Stock-Specific Pressures
The sell-off on December 26 was not uniform, with some stocks underperforming due to company-specific triggers.
Top losers on the Nifty IT index included:
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Coforge, which fell over 3 percent amid reports that it is in advanced talks to acquire a global digital engineering firm in a deal valued at over $1 billion
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LTIMindtree, Mphasis, Tech Mahindra, Tata Consultancy Services (TCS) and HCL Technologies, each declining more than 1 percent
Meanwhile, Infosys, Wipro and Persistent Systems were trading marginally higher, indicating selective buying even as the broader index weakened.
What Investors Should Watch Going Forward
Analysts say the outlook for IT stocks will hinge on execution rather than isolated cost developments.
Key factors likely to drive IT stocks include:
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Deal wins and order pipeline visibility
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Client spending trends in the US and Europe
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Ability to protect margins amid cost pressures
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Adoption of AI-led and digital transformation services
As Jain summed up, “Investor attention will remain on whether revenue growth and margin expansion can offset incremental payroll costs. Salary hikes alone are unlikely to be decisive.”
For now, IT stocks may remain range-bound, but analysts believe clarity on global demand and earnings momentum could determine the sector’s next meaningful move.
