Technology stocks are facing significant pressure in today’s trade, influenced by a US market downturn. The Nifty IT index dropped 2.17%, hitting 36,797.40, with several IT stocks among the top losers. Tech Mahindra and HCL Technologies were hit the hardest, while LTIMindtree saw the steepest decline, falling 3.75% to ₹4,652.90. Other major IT companies like Persistent Systems, Infosys, and L&T Tech also recorded losses. However, TCS was the only stock trading in the green.
Here are five major reasons behind the decline in tech stocks:
1. US Tech Stock Selloff
The Nasdaq Composite suffered a major setback, tumbling 497 points to 18,350, marking a 2.64% drop. Leading the losses was Nvidia, which saw an 8% drop in a single session. Other major players like Broadcom and Super Micro Computer also faced declines.
2. US Tariff War Impact
The US government has escalated its trade war with China, as former President Donald Trump signed an executive order increasing tariffs on Chinese imports by 10% to 20%. The White House justified this move as a response to China’s inability to curb illegal fentanyl trade.
This trade war is expected to drive up inflation in the US, which could lead to cutbacks in discretionary spending by American businesses, ultimately hurting Indian IT companies.
3. Slow IT Sector Growth
According to Kotak Institutional Equities, the recovery in the IT sector is weaker than anticipated. They revised their outlook, stating:
“The 2025 outlook of global companies implies a modest improvement. Indian IT stocks have corrected about 9-21% in the past month, offering some comfort. Investors would ponder the right multiple for the sector, given another year of moderate revenue growth—on first principles, a few stocks offer reasonable upsides. We cut our EPS estimates by 1-5% and Fair Values by 2-21%.”
The firm predicts that FY26 growth will remain modest, though better than FY25, but still below normalized levels due to:
“(1) a slower-than-expected recovery in discretionary spends, (2) uneven recovery in a few verticals (especially hi-tech), (3) possible disruption from AI adoption of enterprises.”
Following the recent stock price corrections, Kotak has upgraded TCS and Tech Mahindra to Buy while downgrading Mphasis to Reduce. The firm also stated:
“We like Infosys, Coforge, and Indegene as well. The recovery in tech spending has been gradual compared to our earlier expectations.”
4. Mixed Outlook on Discretionary Spending
Kotak Institutional Equities also highlighted that while signs of recovery are visible in the retail sector, broader recovery remains uncertain in key industries such as healthcare, manufacturing, telecom, and hi-tech. The primary reasons include:
“(1) focus on cost optimization, (2) pressure on revenue growth, and (3) macro environment and industry-specific uncertainties.”
They further added:
“Investor focus would shift toward the right multiples for the sector on three years of moderate revenue growth and concerns around deflationary risks, as GenAI adoption increases in FY2026E. We believe GenAI will benefit challengers while incumbents face a challenge to adapt. 12-month forward P/E multiples for large companies have corrected 9-15% in the last month. While this is still above historical valuations for incumbents, the case for higher multiples versus pre-Covid can be supported by enhanced payout ratios for large companies (70-100%+ of PAT).”
5. Federal Reserve’s Hawkish Stance
The higher US tariffs could further fuel inflation concerns, prompting the Federal Reserve to adopt a more hawkish approach. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, warned:
“The US stock market, which is now priced to perfection, can suffer a severe correction, even a crash. There is one factor that will tame Trump and that is the market reaction. Even mighty Trump cannot influence markets.”
With inflation fears and global uncertainties mounting, tech stocks are bearing the brunt of market volatility, leading to their sharp decline today.