IT stocks galloped into losses on Wednesday as sentiment faltered amid fears of a probable recession in the US on the back of Trump's tariff offensive. Given the high reliance of Indian IT players on the US market for their revenue, a worsening economic environment in the world’s largest economy can derail the recovery for the companies.
The Indian IT sector generates around 55% of its revenue from the US and 30% from Europe. A slowdown in these key global markets could affect discretionary spending, thereby impacting demand, stated Antique Stock Broking. As a result, the brokerage anticipates Indian IT services growth to be impacted by 200–300 basis points in FY26.
Drowned in these concerns, shares of top IT names like Tata Consultancy Services, HCLTech, Infosys, Wipro and Tech Mahindra swam in a sea of red on Wednesday, shedding as much as 4%.
Much like Antique, global research firm Jefferies also echoed similar sentiment, stating that it favours stocks with higher growth visibility amid tariff-related uncertainty, and does not expect the IT sector to get a re-rating unless the outlook for the US GDP improves.
With almost every major country seeing Trump’s tariffs in the higher range, Bernstein believes it will be the discretionary spending in the US that will take the bigger hit. To that effect, Bernstein has also downgraded the IT sector to an ‘equal-weight’ from its previous ‘overweight’ stance, to bake in the worsening US economic scenario.
The concerns of an US economic weakness were also blown out since the IT sector had just began to see green shoots of demand recovery in the last few quarters, which is likely to hit a pause yet again.
Among verticals, Jefferies also noted that demand from manufacturing and logistics and retail segments will get impacted due to higher tariffs, while that from verticals such as healthcare, hi-tech, utilities and communications will take a softer blow.
In addition to that, Jefferies also downgraded shares of TCS, Wipro and Mphasis and even lowered the earnings per share (EPS) estimates for the IT stocks under its coverage by 2-14%.
Meanwhile, caught in the midst of a global turmoil, the information technology pack is set to kickstart the Q4 earnings season with industry bellwether TCS reporting its numbers on April 10. Caution also persisted ahead of the results announcements as well, since investors remain eager to learn about the management’s outlook on the evolving US situations.
The results of TCS will set the tone for the entire IT pack. TCS is likely to report a muted March quarter, largely due to seasonal factors such as fewer billing days, softening demand, and project delays.
