Why IT industry in India looks shaky as stocks suggest

The IT industry in the country seems to be in decline, with IT stocks dropping significantly as of April 18. The key factors are likely global trade tensions, recession fears, and a weakening rupee.  The evidence leans towards impacts on jobs and investments, but this economic sector may look up through innovation and domestic growth.

However, some reports from early this year noted rising IT stocks. India's IT industry, a vital part of the economy, also shows signs of long-term potential.

Current situation

As of April 18, there was a downturn, with the Nifty IT index falling by 7.65% over the past month and 20.6% over the past three months. Major companies like Infosys, TCS and Wipro have seen their stock prices drop, reflecting broader market concerns.

This downturn has led to reduced hiring and scaled-back investments, affecting jobs and growth. However, there are opportunities for recovery, with potential in AI, cloud computing and India's growing domestic market. Government support for digital infrastructure could also help.

The IT sector's indices, as evidenced by the performance of the Nifty IT index as of April 18, have declined by 7.65% over the past month and 20.6% over the past three months. This considerable drop reflects the poor performance of major IT stocks, including Infosys, Tata Consultancy Services (TCS) and Wipro, which have seen their share prices plummet. For instance, Infosys was recommended as a buy on April 16, with a target price of Rs 1,500 and a stop loss of Rs 1,370, yet the overall market sentiment remains cautious.

 Revenue growth or downfall in FY25

• TCS: 3.8%
• Infosys: 3.7%
• Wipro: -2.7% (decline)
  • Q4 FY25 revenue
  • TCS: Rs 64,479 crore (+0.4% sequentially)
  • Wipro: Rs 22,505 crore (+0.8% sequentially)
  • Infosys: Rs 49,925 crore (-2.01% sequentially)
• FY26 revenue guidance:
  • Infosys: 0-3% growth
  • Wipro: 1.5-3.5% fall in Q1 FY26 in constant currency terms
  • TCS does not provide guidance
• Net profit for Q4 FY25:
  • Infosys: Rs 7,033 crore (-11.7% year-on-year, +3.3% sequentially)

Employment

• Total employment: 11.64 lakh people
• Demand for talent dropped by nearly a fifth in the January-March 2025 quarter compared to the previous quarter
• Infosys added 199 employees, TCS 625, and Wipro 614 in Q4 FY25

Large deal wins

• FY25: $11.6 billion total contract value (TCV), down from $17.7 billion in FY24
• 56% of deals were net new

Stock performance:

• On April 18, 2025, Infosys and Wipro ADRs on the NYSE dropped by 3% and recovered partially to a 0.5% decline by noon
• TCS faced pressure in domestic markets

Infosys CEO Salil Parekh noted, "The fact that we gave a three-point guidance reflects uncertainty in the environment."

TCS CEO K Krithivasan stated, "Uncertainties in March, including deal closures and delays in decision making."

Wipro CEO Srinivas Pallia added that clients are taking a measured approach on large transformation programmes and discretionary spend.

However, earlier reports from January and March 2025 suggest a different picture. For instance, an article from Acara Solutions India dated January 22 projected IT hiring to surge, with top IT majors committing to recruit around 82,000 fresh graduates, and the sector surpassing 150,000 fresher hires in FY25.

IT exports were projected to reach $210 billion in FY25, and overall IT spending was forecast to increase by 11.2% to nearly $160 billion in 2025. Similarly, IBEF reported on April 3, 2025, that the Indian IT industry's revenue was estimated at $245 billion in FY23, with IT spending growing by 11.1% in 2024 to $138.6 billion, projecting the software product industry to hit $100 billion by 2025.

This contrast highlights the difficulty in inferring what is happening with the IT industry.

If 'decline' is assumed...

The decline in India's IT industry, if that is what it is, is driven by a confluence of global and domestic factors.

• Global trade uncertainties and tariffs: A pivotal factor is the global trade turmoil triggered by US President Donald Trump's announcement on April 2, 2025, of sweeping tariffs on imported goods, aiming to protect American industries (Will the Stock Market Crash in 2025? - U.S. News). This move has escalated trade tensions, with Indian IT companies, heavily reliant on exports to the US and Europe, facing reduced demand and supply chain disruptions. The global stock market crash following this announcement, with the S&P 500 declining over 10% in two trading days, has further impacted Indian IT stocks.

• Global recession fears: The threat of a global recession, particularly in major markets like the US and Europe, has led to reduced IT spending by businesses. As companies tighten budgets amid economic slowdowns, demand for IT services such as software development, consulting, and outsourcing has declined, directly affecting the revenue and profitability of Indian IT firms (Indian stock market lags behind its global peers in 2025 - Livemint).

• Rising US yields and weakening rupee: The increase in US Treasury yields has made borrowing more expensive, posing challenges for IT companies with significant debt or expansion plans. Additionally, the weakening Indian rupee against the US dollar has increased operational costs, as many IT firms have revenues in dollars but costs in rupees, squeezing margins (Why are major IT stocks falling today? Key reasons - India Today).

• Valuation concerns and earnings downgrades: Indian IT companies have seen their stock valuations soar in recent years, driven by strong growth and investor optimism. However, as growth rates have moderated and earnings forecasts have been revised downwards, investors have become cautious. This has led to a sell-off in IT stocks, with the Nifty 50 index entering correction territory earlier in 2025, reflecting fears of lofty valuation multiples and trimmed earnings expectations (stock market expectations 2025: Scale down expectations - The Economic Times).

• Domestic economic challenges: India's domestic economy has faced headwinds, with industrial production showing signs of weakness. The Index of Industrial Production (IIP) growth slowed to 2.9% in February 2025, down from 5.6% in February 2024, affecting various sectors, including IT, which is closely linked to overall economic activity (India's production showed signs of improvement in last fiscal, current fiscal may witness pressure: Bank of Baroda - The Economic Times).

• Geopolitical and market uncertainties: The possibility of Trump's return to the White House has heightened fears of protectionist policies, as noted in an article from India Today on March 12, 2025 (Why are major IT stocks falling today? Key reasons - India Today). Additionally, anxiety over US inflation data and its potential to delay interest rate cuts has further dampened investor sentiment.

Impact on the IT industry

The decline has had several immediate and far-reaching impacts on the IT sector. First, the stock market performance is gloomy. IT stocks have underperformed the broader market, with the Nifty IT index's decline reflecting investor pullback from what were once considered safe bets.

Foreign investors pulled over ₹9,000 crore from Indian equities in April 2025, marking the second-largest outflow of the year, contributing to the Nifty plunging 5% intraday before a partial recovery.

Second, in the job market, the major employer in India is seeing reduced hiring and concerns about job losses. Companies have become cautious about expanding their workforce, with some announcing layoffs or hiring freezes, particularly affecting fresh graduates entering the job market.

Third, assessing the investments and growth, it looks like reduced revenues and profits have forced IT companies to scale back investment plans, particularly in research and development and expansion into new markets. This could hinder long-term growth prospects and innovation, potentially slowing the sector's ability to adapt to emerging technologies.

Future outlook

Despite the current challenges, there are reasons for cautious optimism. The IT industry's historical resilience suggests potential for recovery, supported by several factors:

• Resolution of trade tensions: If global trade tensions ease and tariffs are reduced or eliminated, demand for IT services could rebound. A resolution to the US-China trade war and other bilateral disputes could restore confidence in the global economy (Will the Stock Market Crash in 2025? - U.S. News).

• Technological advancements: The ongoing digital transformation across industries continues to create new opportunities. Areas such as artificial intelligence (AI), cloud computing, and cybersecurity are expected to drive growth, with Indian IT firms well-positioned due to their skilled workforce and cost competitiveness (Best IT Stocks on NSE: List of Top Tech Companies in India (2025) - Smallcase).

• Domestic market growth: India's large and growing domestic market offers significant potential for IT companies to expand operations and reduce dependence on exports. As digital adoption accelerates within India, opportunities for IT services and solutions are likely to increase (Best IT Stocks to Invest in India for 2025 - Stockgro).

• Government support: The Indian government has been supportive through policies and initiatives, including incentives for startups and investments in digital infrastructure, which could mitigate some current challenges (India's IT Sector Analysis: A Powerhouse Driving Economic Growth - Angel One).

However, the short-term outlook remains uncertain, with companies focusing on cost take-out and consolidation deals rather than large transformation programmes, as clients adopt a measured approach to spending.

Detailed performance metrics

To provide a clearer picture, here is a table summarising the recent performance of the Nifty IT index, based on available data:

This table highlights the significant monthly and quarterly declines, underscoring the sector's recent struggles.

Comparative analysis with other indices

The following table compares the Nifty IT index's performance with other indices, based on the available data:

The decline in India's IT industry as of April 18, 2025, is a complex issue driven by global trade uncertainties, recession fears, rising US yields, valuation concerns, and domestic economic challenges. While the immediate future may remain uncertain, the sector's fundamental strengths and the ongoing digital revolution suggest it will continue to play a crucial role in India's economy. Stakeholders must focus on innovation, adaptability, and strategic planning to navigate these challenges and ensure long-term success, acknowledging the controversy from earlier growth projections.