IT Stocks Crash as Trade War Fears and US Slowdown Trigger Market Sell-Off

Tech Mahindra, Wipro, and Infosys Among Biggest Losers as IT Index Sinks 4%

Indian IT stocks faced a steep decline on February 28, extending their losing streak for the seventh consecutive session amid concerns over a potential US trade war, economic slowdown, and weak job data. The Nifty IT index tumbled over 4% to 37,318.30, as fresh tariff threats from US President Donald Trump and Nvidia’s Q4 results dampened investor sentiment.

Adding to the pressure, US weekly jobless claims rose more than expected, signaling a possible slowdown in the world’s largest economy.

IT Stocks Take a Beating: Tech Mahindra, Wipro Lead Declines

The sell-off impacted major IT firms, with Tech Mahindra, Wipro, Infosys, and Mphasis witnessing significant declines.

• Tech Mahindra shares plunged 6% to close at ₹1,485.95, marking a 12% decline in the last month.
• Wipro and Mphasis shares dropped over 5% each, reflecting weaker investor confidence in the IT sector.
• LTI Mindtree and Infosys tumbled more than 4%, further dragging the overall Nifty IT index.
• Persistent Systems, HCL Tech, and TCS recorded losses of over 3% each, while L&T Technology Services and Coforge fell over 2% each.

The downward trend highlights growing concerns about global economic uncertainties, especially with a weakening US market— a key revenue source for Indian IT firms.

Trump’s Tariffs Add to Market Woes

The latest decline in IT stocks coincides with Donald Trump’s announcement of fresh tariffs on Mexican, Canadian, and Chinese goods, which could disrupt global trade dynamics.

• On February 27, Trump proposed a 25% tariff on Mexican and Canadian imports, set to take effect on March 4.
• He also announced an additional 10% tariff on Chinese imports, citing drug trafficking concerns, bringing the total tariff on Chinese goods to 20%.
• The European Union (EU) is also in the crosshairs, with Trump proposing a 25% duty on EU imports.

These trade war concerns have triggered panic selling in global equity markets, with the US and Asian indices experiencing downward pressure.

Investor Sentiment Worsens Amid Global Headwinds

Market analysts attribute the IT sector’s prolonged weakness to a mix of geopolitical risks, foreign outflows, and profit booking.

• Prashanth Tapse, Senior VP (Research) at Mehta Equities, noted that Trump’s tariff announcement and Nvidia’s mixed Q4 results were major negative catalysts driving market pessimism.
• Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, pointed out that foreign investors are pulling out funds amid global economic uncertainty, leading to heightened selling pressure in IT stocks.

“There is no respite for foreign outflows, which is adding pressure on the markets at this point. Additionally, global cues remain negative, with Asian and U.S. markets under pressure and profit booking happening across the broader equity markets,” Bathini added.

US Slowdown and Rising Inflation Worries Weigh on IT Stocks

Another factor adding to the IT sector’s troubles is the recent data showing a spike in US jobless claims, raising concerns about a potential economic slowdown.

• Higher-than-expected unemployment figures suggest weaker hiring trends, which could impact corporate IT spending.
• Inflation concerns have also resurfaced, with rising import duties increasing costs for businesses and consumers.

Since the US is a major revenue source for Indian IT companies, a slowdown in IT spending could hurt earnings in the coming quarters.

Nvidia’s Q4 Results Add to Market Jitters

Adding to market uncertainty, Nvidia’s Q4 earnings report delivered a mixed response, influencing tech stocks globally.

• While Nvidia reported strong growth in AI and cloud computing, there were concerns about the sustainability of its revenue surge.
• Given the interconnected nature of global tech stocks, Indian IT firms faced spillover effects from Nvidia’s volatile stock movement in the US.

What’s Next for the IT Sector?

The outlook for Indian IT stocks remains cautious, with analysts expecting continued volatility amid global uncertainty.

Highlights to Watch

• US Economic Data: Any further weakness in US hiring or corporate spending could impact Indian IT firms’ deal pipeline and revenue growth.
• Federal Reserve’s Policy: If the US Fed signals a delay in rate cuts, it could negatively impact IT stocks, which are already facing margin pressures.
• Foreign Investor Sentiment: Continued FII outflows could keep pressure on IT stock valuations, making near-term recovery difficult.
• Tech Earnings in Q1 FY25: The upcoming earnings season will be crucial in determining how IT companies navigate macroeconomic challenges.

IT Stocks Under Pressure, but Long-Term Prospects Intact

While the recent sell-off in IT stocks reflects short-term concerns, the long-term growth story of India’s IT sector remains intact.

• Geopolitical tensions and US slowdown fears are driving the current market downturn, but the demand for digital transformation and AI-driven solutions will continue to support IT companies.
• Investors may see opportunities to buy quality IT stocks at lower valuations, but near-term volatility is expected to persist.

For now, all eyes remain on global economic developments, especially in the US and China, as Indian IT stocks navigate one of their most challenging phases in recent years.