IT Sector Faces Market Pressure Over US Tariff Fallout
Shares of leading Indian IT companies such as TCS, Infosys, Tech Mahindra, and Coforge saw a sharp decline on April 3 amid mounting concerns that Trump’s reciprocal tariffs could indirectly impact IT client spending in the US. The Nifty IT Index has already corrected by nearly 20% in the past three months, reflecting growing investor fears over a potential recession and slowing discretionary IT budgets.
The sharp downturn in IT stocks follows fears that weaker US economic conditions and trade disruptions could impact corporate IT spending, leading to fewer contracts and slowing revenue growth for Indian IT service providers.
IT Stock Declines:
TCS and Infosys led the selloff, facing concerns over demand softness.
Midcap IT firms like Coforge, KPIT Tech, and Persistent Systems also saw declines.
Smallcap IT firms like Cyient, Newgen, and Affle remained relatively insulated, given their domestic or niche client base.
Analysts Warn of IT Earnings Impact in Q4FY25 and FY26
Market experts expect a sequential revenue decline for Indian IT firms in Q4FY25, citing multiple factors, including:
Seasonality and fewer billing days.
Slowing US demand amid macroeconomic uncertainty.
Potential impact of trade tensions on corporate IT budgets.
“The US economy has weakened in recent months, and the deteriorating macro environment will likely weigh on Q4FY25 numbers and FY26E guidance,” said Sumit Pokharna, VP – Fundamental Research, Kotak Securities.
Investor Concerns Over Federal Reserve Policy and Inflation Risks
The Federal Reserve’s potential rate cut plans could be disrupted if US inflation rises due to tariffs, which would further weigh on corporate IT spending.
“Investors are evaluating whether the negatives are already priced in. Any retaliatory tariffs could push inflation higher and impact the Fed’s rate cut decision, which wouldn’t bode well for the IT sector,” Pokharna added.
If inflationary pressures persist, it could reduce disposable income and consumer spending, indirectly impacting US firms’ IT budgets.
Highlights from IT Sector Concerns:
20% decline in Nifty IT Index over the past three months.
Slower US corporate IT spending could affect contract renewals and earnings growth.
Federal Reserve rate cut uncertainty could increase volatility in the sector.
IT service providers with high exposure to US discretionary spending face the biggest risk.
Can Indian IT Avoid a Direct Hit? Some Analysts See Resilience
While concerns over demand slowdown persist, some analysts remain cautiously optimistic, highlighting that Indian IT is primarily service-oriented and may not face direct tariff-related restrictions.
“The pressure seems to be more on manufacturing, and since Indian IT is predominantly service-oriented, it may avoid a direct hit,” said market expert Kranti Bathani.
Despite this view, some remain skeptical, warning of a cascading effect on client budgets over time.
“Even if IT services aren’t directly impacted, a prolonged tariff regime could affect Indian firms due to secondary economic effects,” said Siddharth Bhamre, Head of Research at Asit C Mehta.
Midcap IT Stocks at Risk, Smallcaps May Escape Impact
While large-cap IT firms are at the forefront of the selloff, midcap names like Coforge, KPIT Tech, and Persistent Systems are also feeling the pressure due to their reliance on US clients.
However, smallcap IT firms such as Cyient, Newgen, and Affle could remain resilient since their client bases are more domestically focused or serve niche markets.
Will IT Stocks Recover or Face Further Pressure?
As the dust settles, the outlook for Indian IT stocks hinges on:
US corporate IT budgets: If demand slows, contract renewals and new deals may decline.
Federal Reserve rate decisions: If inflation rises due to tariffs, interest rate cuts could be delayed, affecting investor sentiment.
India’s domestic IT market: Strong domestic demand could partially offset export risks.
For now, investors remain cautious, closely watching economic indicators from the US before making further bets on the IT sector.
