Indian IT stocks have significantly underperformed the benchmark indices so far this year, reflecting persistent concerns over slowing global technology spending and macroeconomic uncertainty in key overseas markets.
While the Nifty IT index has declined 28.71% year-to-date, the benchmark Nifty 50 has fallen a comparatively modest 8.32%, highlighting the sector’s pronounced weakness. Although IT stocks have staged a 7.13% rebound over the past month, outperforming the ‘s 1.74% gain, analysts believe the recovery remains tentative.
Investors continue to grapple with concerns over delayed client decision-making, weak discretionary spending, tariff-related uncertainty, and the risk of slower economic growth in the US—the largest revenue market for Indian IT companies. At the same time, volatility in the rupee, evolving expectations around US interest rates and the pace of artificial intelligence-led spending continue to shape sentiment towards the sector.
Crude rebound revives concerns over inflation, FPI flows and IT outlook
Moreover, Indian equities have turned cautious after a sharp recovery over the past few weeks, as renewed geopolitical tensions in the Middle East threaten to reverse some of the macro tailwinds that had supported the market.
Brent crude, which had slipped to around $72 a barrel after easing concerns over supply disruptions, has started climbing again following fresh military exchanges between the US and Iran, reviving fears of prolonged instability in the region.
On Monday, 29 June, Brent crude futures rose 45 cents, or 0.6%, to $72.44 a barrel by 0627 GMT, while US West Texas Intermediate (WTI) crude gained 82 cents, or 1.2%, to $70.05 a barrel.
The rebound comes after Brent crude fell 10.6% last week, marking its third consecutive weekly decline, as oil shipments through the Strait of Hormuz climbed to their highest level since the US-Israeli conflict with Iran began in late February, easing concerns over supply disruptions.
The rebound in oil prices could complicate India’s inflation and current account outlook, potentially affecting the pace of foreign portfolio investor (FPI) inflows that had strengthened in recent weeks.
FPIs have sold Indian equities worth ₹53,022 crore so far in June. However, the pace of selling has moderated significantly in the second half of the month, with FPIs turning selective buyers and remaining net buyers in all four trading sessions last week.
While higher crude prices generally weigh on oil-importing sectors and the broader market, a stronger and rising global uncertainty could also influence sectoral trends.
Export-oriented sectors such as information technology may find relative support from a firmer dollar, although any slowdown in the US economy or reduction in corporate technology spending due to heightened geopolitical risks could temper the sector’s earnings outlook, according to experts.
IT Stocks: Are valuations attractive post-correction?
According to Mohit Gulati, CIO and Managing Partner at ITI Growth Opportunities Fund, the sharp correction in IT stocks reflects more than just cyclical weakness. He believes the sector is undergoing a structural transition as artificial intelligence reshapes the traditional outsourcing model.
“The Nifty IT index is down nearly 28% year-to-date, and while sub-20x valuations may appear attractive relative to long-term averages, this is more than a cyclical correction,” Gulati said.
He argued that Indian IT built its $300-billion industry on a headcount-driven growth model, where revenue expanded alongside employee additions. However, AI is disrupting that equation by improving productivity and reducing the need for incremental hiring.
Gulati pointed out that the industry’s largest companies added fewer than 4,000 employees last year compared with nearly 600,000 at the hiring peak, signalling a fundamental shift in the business model. While AI is accelerating the decline in traditional services revenue, new AI-led opportunities are yet to scale sufficiently to offset the slowdown.
“The sector will re-rate only when companies demonstrate that they have genuinely transitioned to high-margin, outcome-based AI solutions rather than merely announcing AI initiatives,” he said.
Sunny Agrawal, Head of Fundamental Research at SBI Securities, believes the recent correction has made valuations significantly more attractive, but says sustainable upside will depend on earnings growth.
“Post the correction, valuations have become comfortable. In fact, the Nifty IT index is now trading at a discount to the Nifty 50 on valuation metrics,” Agrawal said.
However, he noted that growth remains the biggest concern for investors. Large-cap IT companies are guiding for revenue growth of around 3-5%, while mid-tier IT firms are targeting 12-15% growth over the next two years.
“The key uncertainty is how AI will influence future earnings and when Indian IT companies will be able to successfully package AI with their existing offerings to deliver scalable, bundled solutions for clients,” he said.
According to Agrawal, the downside for the sector appears limited after the steep correction, but meaningful upside will require greater clarity on growth prospects.
Offering a more constructive view, Tushar Badjate, Director at Badjate Stock & Shares Pvt. Ltd., believes the market has become overly pessimistic about the long-term impact of artificial intelligence on Indian IT companies.
“The concerns are real—AI-led automation, delayed spending by US clients, capital shifting toward manufacturing and uncertainty over AI’s economics have all contributed to the sector’s 28% decline,” he said.
However, Badjate argues that investors are overestimating the risks while underappreciating the opportunities.
Drawing a parallel with the widespread adoption of electricity, he said cheaper and more accessible software enabled by AI is likely to increase, rather than reduce, enterprise technology spending.
He noted that global technology companies have committed hundreds of billions of dollars towards AI infrastructure, investments that will eventually need to generate returns through large-scale enterprise adoption. Since Indian IT companies derive 50-70% of their revenue from US clients, they remain well positioned to benefit from the integration, deployment, governance and maintenance of AI solutions.
“Every major technology wave—from enterprise software and the internet to cloud computing and digital transformation—initially appeared disruptive. Indian IT adapted to each cycle and ultimately emerged stronger,” Badjate said.
While he expects volatility to persist through 2026, he believes the period between 2027 and 2030 could mark the beginning of the next major growth phase for India’s technology sector as AI adoption becomes mainstream.
Technical Views
From a technical standpoint, Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, believes the outlook for the Nifty IT index remains weak despite last week’s recovery.
According to Shah, the index continues to trade below its key moving averages on both the daily and weekly charts, indicating that the primary trend remains under pressure.
He added that the Relative Rotation Graph (RRG) still places the Nifty IT index in the lagging quadrant, signalling continued underperformance and weak relative momentum compared with the broader market. The MACD indicator also remains below both the zero line and the signal line, suggesting a lack of strong bullish momentum.
While Shah does not rule out intermittent pullbacks or short-covering rallies, he believes a meaningful trend reversal is unlikely unless the index decisively reclaims the 28,200-28,300 zone. Until then, he expects the broader technical bias to remain cautious, with any rallies likely to face selling pressure at higher levels.
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