Why Infosys, TCS, HCL Tech, and Other IT Stocks are Falling

The Indian markets are trading lower on 5 September 2025, led by declines in IT stocks.

At the time of writing, the BSE Sensex is down by around 355 points (0.45%) trading near 80,362 levels, while the Nifty 50 is down by about 97 points (0.4%) near 24,637 levels.

The broader market is cautious amid GST reforms and global cues, with the rupee showing weakness once again.

IT stocks like Infosys, TCS, HCL Tech and others are falling.

Here are some reasons why IT stocks are falling.

2 Reasons Why IT Stocks are Falling

#1 Tax on Foreign Remote Workers

The US has already imposed high tariffs on exports from India. There are unconfirmed reports that it is now considering taxes on its IT services and tech workers. These reports point out that there could be tax on foreign remote workers amid the crackdown on the H-1B visa programme.

According to an India Today report, the debate on tariffs for the IT sector gained traction when conservative commentator Jack Posobiec posted on X that "all outsourcing should be tariffed" and that foreign countries must "pay for the privilege of providing services remotely to the US the same way as goods."

The IT sector is not impacted by the Trump tariffs thus far. If tariffs apply in any direct or indirect way, it could cause significant damage to the economy and IT sector workers.

#2 Slowdown in Earnings and Client Spending

This has not been an immediate trigger for today's fall, but more of a trend that we have seen in the last few months.

Leading Indian IT companies like HCL Tech, TCS, Infosys etc., have reported weak revenue growth and muted earnings for recent quarters, with several large IT firms showing revenue declines quarter-on-quarter and year-on-year due to subdued client demand.

Barring Infosys, most IT companies reported sequential declines in revenues.

Financial Performance of TCS, Infosys, and HCL Tech in Q1 FY26

Rs m	TCS	Infosys	HCL Tech
Net Sales	634,370	422,790	303,490
Profit After Tax	128,190	69,240	38,440
Gross Profit Margin	26.6	23.5	19.9

In terms of financial performance, almost all of the IT companies reported very subdued performance.

However, the sector did benefit from a better deal pipeline, especially in AI and generative AI initiatives, infrastructure modernisation, and cost optimisation, although broad revenue growth was restrained.

What Next?

The reports of the possibility of tax on foreign remote workers is not confirmed.

Having said that, if there is any direct or indirect form of taxation, it could impact the IT sector, which has been showing signs of slowing.

Global clients are tightening technology budgets due to macroeconomic uncertainties including tariff impacts and trade tensions, which has led to cautious spending and delayed decision-making impacting deal momentum.

Employee retrenchments and workforce adjustments reflect underlying demand-supply mismatches and margin pressures within the sector.

The Banking, Financial Services, and Insurance (BFSI) sector and has seen significant discretionary IT spending cuts and cautious budget management, especially in US and Europe.

Credit rating agency ICRA forecasts a stable but subdued 2-3% revenue growth in US dollar terms for the Indian IT sector in FY26 due to uncertainties related to US tariffs that impact IT budget allocations. Hiring is expected to be cautious but may be driven by demands for AI-related skills.

AI transformation is profoundly impacting the Indian IT sector by driving major efficiencies, reshaping workflows, and prompting a strategic shift in business models and talent approaches.

This ongoing AI-driven transformation is challenging but also presents significant growth and leadership opportunities for India's IT sector in the global technology landscape.

Conclusion

If no tariffs are levied of any kind, we might see the fall in IT stocks might be a temporary aberration.

However, the real problem lies in the headwinds that IT companies face. These include lower client spends, margin pressures due to commoditisation of traditional IT services and rising employee costs, and high attrition rates.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...