IT stocks witnessed a significant decline on Wednesday as the Nifty IT index fell 2.91 per cent to close at 36,310.65, wiping out over ₹6,100 crore in market value amid growing concerns about the US economy and potential trade tensions.

The sector-wide sell-off saw heavyweight Infosys leading the losses with a 4.26 per cent drop, while L&T Technology Services (LTTS) fell 5.43 per cent. Other major IT companies also posted substantial declines, with Wipro dropping 3.31 per cent, LTIMindtree falling 3.62 per cent and TCS closing down 1.93 per cent.

Market analysts attribute the sharp decline to several factors, including worries about the US economy, delayed interest rate cuts, and ongoing trade tensions between the US and Canada.

“This is because of US recession worries and the tremors that’s taking place in US,” said Kranthi Bathini, Director of Equity Strategy at WealthMills Securities. “The IT sector, which had been showing some signs of recovery earlier with US GDP growth expected to go up, has been impacted by changes in the US economy over the last fortnight.”

“Fear of tariffs are mounting, concern of US slow-down is rising, expectations of inflation uptick, uncertainty on rate cut by fed, delays in decision making on IT spend by US customers, healthy IT order pipeline was build-up but conversion stuck in a limbo, and increased competitive intensity for large deals could pressure pricing are not conducive factors for Indian IT sector,” said Sumit Pokharna, VP-Fundamental Research at Kotak Securities. “IT sector stocks are nursing steep losses due to the above mentioned factors.”

Adding to the pressure was the sell-off in US tech companies and escalating trade tensions. US President Trump’s tariff policies, particularly regarding aluminum and steel imports from Canada, have created volatility in global markets, directly affecting sentiment toward Indian IT companies that derive a significant portion of their revenue from North America.

ICRA, a credit rating agency, released a report today projecting moderate growth for Indian IT services companies in the coming fiscal year. According to the report, revenue growth for Indian IT services companies is expected to be around 4-6 per cent in USD terms in FY2026, following an estimated 4-5 per cent increase in FY2025.

“The growth momentum for ICRA’s sample set of IT services companies is likely to remain muted over the near term, owing to the looming uncertainty related to imposition of the US trade tariffs and macroeconomic headwinds across the key markets of the US and Europe,” said Deepak Jotwani, Vice President & Sector Head at ICRA.

Morgan Stanley analysts have also revised their outlook for the sector, lowering revenue growth forecasts for large-cap Indian IT firms by 100-200 basis points. They cited several downside risks, including macroeconomic headwinds in the US, slower revenue growth, and valuation concerns.

“The US real GDP growth forecasts for 2025 and 2026 have been revised downward, indicating slower economic expansion. Inflation remains firm, and interest rate cuts are now expected to be delayed until 2026, leading to moderation in nominal GDP growth,” noted Morgan Stanley’s report.

The investment bank has downgraded Infosys to Equal-Weight due to weaker deal wins and concerns over discretionary spending, while expressing a preference for TCS over Infosys and Tech Mahindra over HCL Tech.

Utsav Verma, Head of Research – Institutional Equities at Choice Broking, offered a cautiously optimistic view for the longer term: “We anticipate a growth rate of 5 per cent to 6 per cent for FY26, a notable recovery from the 3 per cent to 4 per cent growth observed in the past two years. Additionally, a few Tier-1 companies have raised their revenue guidance to 5 per cent for the near term.”

However, Verma noted that the sector’s recovery could be moderated by uncertainties related to the Federal Reserve’s interest rate decisions, concerns about a potential economic slowdown in the US, and the escalation of trade tariff conflicts.

On the positive side, ICRA highlighted that attrition rates in the IT sector have stabilised, with the last 12 months’ attrition for sample companies correcting to 12.8 per cent in Q3 FY2025 from 22.3 per cent in Q3 FY2023. The operating profit margins (OPM) for the sample set are expected to sustain at 22.5-23.0 per cent over the next three to four quarters.

Market participants are now closely watching US inflation data and monitoring trade developments between the US and Canada, which could provide further direction for the IT sector in the coming weeks.