IT Stocks Hit by US Slowdown: What Next?

IT stocks on Dalal Street have not fared well after a massive post-pandemic rally.

The slowdown is mainly due to the US, which contributes nearly 70% of Indian IT export revenue. US companies have cut discretionary tech spending.

While companies were optimistic about demand recovery during FY26, Donald Trump's tariffs have derailed the expected recovery.

Deals are now taking longer to close, and in some cases, clients are waiting for clarity on tariffs.

Back home, this has started to reflect in the numbers. Growth has been muted, margins are under pressure, and hiring is subdued.

Many investors are wondering what happens next with IT stock prices down from their all-time highs. Is this a temporary phase, or is the sector adjusting to a new normal?

Let's take a look...

Performance of the IT Industry

In FY25, the aggregate revenue of the top five listed players (TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra) grew 4.8% from last year.

Among the top five companies, Wipro and Tech Mahindra reported declining revenue, while TCS, Infosys, and HCL performed better, with about 6% revenue growth.

However, the growth was much lower than their collective revenue growth of 18.1% in FY23, at the cycle's peak, and was on par with 4.7% revenue growth in FY24.

Weakness in key US markets due to higher interest rates, recession fears, and uncertainty regarding Trump's tariffs continues to weigh on performance.

Financial Snapshot (FY25)

Particulars	TCS	Infosys	HCL	Wipro	Tech Mahindra
Revenue Growth (%)	6	6	6.5	-0.7	-0.7
Profit Growth (%)	6	2	10.8	19	77.4
Margins (%)	24.3	21.1	18	16.1	10.5
RoCE (%)	65	38	32	20	20

Source: Company & Screener

Margins have remained stable despite sectoral challenges. They improved marginally in FY25 and are expected to remain at similar levels in FY26.

Another key indicator, attrition levels, increased in the second half of FY25.

This came after Trump assumed the US presidency. Uncertainty regarding his policies, tariffs, and growing recession fears led to a slowdown in deal closures.

The Nifty IT Index fell 10% in two trading sessions in April, as recession fears increased due to the announcement of reciprocal tariffs. This has pushed back hopes of a quick recovery.

There is also a growing concern about artificial intelligence automating routine tasks, coding, etc.

Moreover, the growing trend of multinational companies setting up global capability centres (GCCs) to insource technology services may also seem negative for Indian IT companies.

How is the Growth Outlook?

This is also shown in the guidance of the IT companies for FY26.

Infosys expects a constant currency revenue growth of 0-3%, lower than the initial 2-4% estimates.

Wipro expects a revenue growth of -1.5% to -3.5 % for the first quarter of FY26.

However, HCL Tech and Tech Mahindra bucked the trend. HCL has guided revenue growth of 2-5%, while Tech Mahindra expects growth of 2-6%. The optimism comes from firm deal booking, which the companies expect to convert into revenue.

In FY25, Tech Mahindra won deals worth US$ 2.7 billion (bn), HCL's new deal wins stood at US$ 9.38 bn, and Infosys also secured deal wins worth US$ 11.6 bn.

TCS does not provide any guidance. But it maintains a positive outlook for FY26.

Total Deal Wins by Top 5 IT companies (in US$ bn)

	Q1FY24	Q2FY24	Q3FY24	Q4FY24	Q1FY25	Q2FY25	Q3FY25	Q4FY25
Deal Wins	15.7	24.8	14.5	21.7	16.1	15.3	16.5	20.3

Source: CareEdge Rating

In terms of client wins, the top IT firms added 42 new clients in FY25, compared to 36 last year. But the number of clients in large deals (over US$ 10 million) was lower. As a result, companies are focusing on existing clients for future business and growth opportunities to secure more deals.

In addition to the deal wins, IT companies are also trying to gain investor confidence with progress in AI, which is expected to accelerate in the coming years. This is true especially for clients' digital initiatives, as rising AI adoption continues to provide opportunities for IT companies.

They're also cautious about hiring, yearly increments, and bonuses, which will help to maintain margins.

However, currency fluctuations could challenge the margin performance.

What's Next?

The positive sign is the recent easing of trade tensions. This includes the partial rollback of tariffs on China, which increased the risk of a recession in the US economy.

The Nifty IT Index also showed a similar trend. It recovered about 25% from its low on 7 April.

The sector is expected to sustain revenue growth of around 3-5% in FY26, supported by recovery in key markets and an improvement in the global economy.

Valuations have also come down, from a peak price to equity (PE) multiple of about 40, the Nifty IT Index currently trades at a PE of 28. The valuation is nearly a 20% premium to the 10-year median of 23.4.

Nonetheless, the long-term outlook remains bright.

The rise in digitisation and the increase in demand for emerging technologies such as 5G, advancements in data analytics, artificial intelligence, cloud computing, cybersecurity, robotics and blockchain offer significant growth opportunities for Indian IT companies.

Thus, companies in the sector are realigning their offerings to meet their customers' growing needs for emerging technologies and becoming more effective in the changing business environment.

Conclusion

The Indian IT sector is navigating a challenging phase, with US-led demand softness and delays in deal wins, weighing on performance.

While near-term recovery looks uncertain, a revival in client confidence and easing macro hurdles could support gradual improvement.

For now, caution remains the dominant sentiment in the market as IT companies gear up for a slow growth environment, at least in the short term.

Long-term investors should watch for clarity on tariffs and demand stabilisation in the US when considering these stocks.

Instead of relying only on hype, it's necessary to carefully analyse the company's fundamentals, including financial performance, corporate governance, and growth prospects.

Happy investing.

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