The brutal selloff in has made headlines in the stock market this year, and maybe rightly so. The sector, which accounts for 9.4% of the headline index, is a key component of investors’ portfolios. And when it falls, the impact reverberates across the market.
Hurt by weak demand, tariff impact and H1-B visa fee hike in 2025, the headwinds for the sector have only multiplied this year, with the growing shift to (AI) emerging as a key risk, along with weak client spending and longer decision cycles.
Against this backdrop, barring OFSS, all Nifty IT stocks have declined, shedding up to 30% this year. Cumulatively, they have eroded investor wealth worth ₹767,019 crore, according to data available on ACE Equity.
Karan Aggarwal, Co-founder & CIO, Ametra PMS, said that IT is expected to go through a difficult cycle very similar to 1999-2003 on account of the structural rise of AI and bad debt trouble in the core US BFSI sector.
IT companies’ earnings paint a bleak picture
The recently released earnings by the large-cap IT companies do little to quash investor concerns. While the results were largely in line, the guidance and outlook pressured the stocks from , to .
The is down 25% in 2026, twice the broader market’s fall. But more than the earnings themselves, it is the commentary and guidance that have been shaping the plunge, according to Manav Medewala, Research Analyst at Mirae Asset ShareKhan.
On the numbers, results were predictably mixed. Infosys posted 21% profit growth but guided FY27 CC revenue growth at a cautious 1.5–3.5%, lower than the Street’s expectation. Wipro guided Q1FY27 to decline 2% to flat sequentially. Tech Mahindra sounded confident in beating industry growth. Among mid-caps, Persistent maintained its guidance to achieve $2bn revenue by FY27, while LTTS posted 23.6% profit growth backed by $855 mn in large deals, up 40% YoY.
“Client-specific issues, delays in large deal materialisation, a slowdown in discretionary spending, and the looming fear of AI-driven pricing deflation have collectively unnerved investors more than any single quarterly number,” said Medewala.
Narinder Wadhwa, MD & CEO, Ski Capital Services, echoed similar views. “While deal pipelines remain strong, the key issue is slow conversion into revenues, reflecting cautious client spending and longer decision cycles. At the same time, the sector is undergoing a structural shift due to AI—clients are reallocating budgets rather than expanding them,” he said.
As a result, IT could move from a high-growth sector to one growing at a moderate pace. Wadhwa estimated that the IT sector’s growth profile will decline to 6-8% from the 12–15% range earlier, making this phase less cyclical and more structural in nature.
IT sector outlook
Therefore, probably the only safe thing amid this uncertainty is to assume that this difficult phase for Indian IT might prevail for a few years. Although have been rendered attractive amid the high pessimism and selloff.
DSP Mutual Fund, in a report earlier this month, said that the IT sector’s weight in the Nifty 50 is also near an all-time low, which suggests it is under-owned. The fund house believes that the companies will continue to play an important role in enterprise technology, with their debt-free status and high and stable returns on equity, suggesting limited terminal-value risk at current prices.
However, the turnaround might not be swift. Aggarwal said that anyone who is looking for “quick rebound on IT stocks might be in for a disappointment”. This turbulence might last for 3-5 years with emerging as much leaner versions with significantly improved profitability, he noted.
Is it time to go contra on IT stocks?
Analysts largely believe that the sector does offer a contrarian opportunity, but that should be approached with discipline.
Overall, the investment case in IT has shifted: it is no longer a high-growth sector delivering 15-20% returns, but rather a moderate-growth space where 10–15% returns are achievable through selective positioning, said Wadhwa. Therefore, while a contra opportunity does exist, it will play out as a gradual, stock-specific recovery.
Aggarwal of Ametra PMS also suggested that the present dip represents a decent entry point, but investors must be ready to deploy cash over even deeper cuts over the next 2-3 years.
“Largecap IT stocks such as Infosys, and HCL are available at relatively moderate valuations, coming at strong cash positions which would assist them in transitioning through sectoral headwinds. We would recommend investors to stick to large-cap IT stocks if they want to dabble in a 5-year contra play,” he opined.
Wadhwa also expects Infosys to be a standout performer due to its improving execution and deal conversion visibility; TCS remains the most stable and defensive compounder, Tech Mahindra offers a higher-risk turnaround opportunity, and HCLTech currently faces relatively weaker visibility and should be approached cautiously.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.