Nifty IT index bleeds 18% YTD: Can H2 spark a turnaround in fortunes of IT stocks?
However, despite the gloomy backdrop, there is growing optimism about a turnaround in the second half of the year. Improved Q1 earnings, stable macro indicators, and renewed technology demand may pave the way for a gradual but selective recovery, believe analysts.
Market participants have begun to identify early signs of a turnaround in India's IT industry. Om Ghawalkar, Market Analyst at Share.Market, noted that India's top IT players — Infosys, TCS, Wipro, and HCL Tech — delivered encouraging results in Q1 FY26, signalling improving demand conditions and operational stability.
India's top IT services firms delivered single-digit revenue growth in April-June, capping off a mixed, somewhat-sobering quarter as macroeconomic instability and geopolitical tensions weighed on global tech demand and delayed client decision-making. Management commentary painted a mixed picture. While caution prevailed, industry CEOs emphasised cost optimisation, vendor consolidation, and opportunities in AI makeovers. An overview of Q1 report cards of Indian IT giants shows year-on-year revenue growth ranging from 0.8 per cent (for Wipro) to 8.1 per cent (HCL Technologies).
Nuvama Institutional Equities expects the demand environment to remain challenging for the next one-two quarters due to macro uncertainty. "However, we remain positive on medium-to-long-term outlook, as technology debt is very high for enterprises, which will warrant revival in spending as macro improves," Nuvama said in its report post-Infosys' results, that concluded the Q1 earnings season for Tier-1 IT services firms.
Meanwhile, US President Donald Trump on Wednesday declared a 25 per cent tariff on Indian goods, and announced an unspecified penalty for its close ties with Russia for defence and energy, ahead of the August 1 deadline. In a press statement, Trump referred to India as a 'friend' but argued that it imposes some of the highest tariffs on US goods and continues to enforce non-tariff barriers that are "unreasonable."
The IT sector, even though not directly impacted by the tariffs, as service exports to the US are not directly subject to levy, will be likely face an indirect impact, analysts opined. They believe that anticipated weakness in the US demand and broader macroeconomic headwinds could still weigh on business.
IT majors with substantial US revenues may underperform, but the declines are likely to be less pronounced than those seen in manufacturing exporters, said Mayank Jain, Market Analyst, Share.Market.
However, independent market analyst Sandip Sabharwal believes IT could emerge as a contra bet. "It is possible that in the near term, Indian IT companies which have been beaten down could become contrarian performers as the rupee decline directly adds to their profitability," Sabharwal said in a post on social media platform X. A weak Indian rupee bodes well for IT companies as they earn most of their revenue in US dollar, providing them with currency tailwinds.
Vishnu Kant Upadhyay, AVP - Research & Advisory at Master Capital Services, believes that while the IT sector continues to face short-term headwinds, it is on course for a meaningful rebound in the latter half of 2025. Growth in exports, employment, and innovation will be key drivers.
He advised investors with a medium to long-term horizon to start accumulating fundamentally strong IT stocks. India's cost competitiveness, a large skilled talent pool, and high R&D intensity should continue to underpin long-term growth.
However, Siddharth Tyagi, Research Analyst at INVasset PMS, said a broad-based recovery may be unlikely, but select IT players with operational resilience, diversified clientele, and digital strength could outperform. 'The worst of the margin pressures seems behind us,' he pointed out, noting normalising attrition, softening subcontracting costs, and potential currency tailwinds for exporters. He said investor focus will remain on guidance, large deal wins, and commentary around sectoral demand in upcoming results.
Trivesh D, COO of Tradejini stated that while GenAI adoption offers long-term promise, current valuations for large-cap IT names leave little room for near-term outperformance. 'This is a market for selective positioning. Investors need to closely track demand trends and be patient,' he advised.
Upadhyay of Master Capital Services said Infosys remains a steady performer and has the potential to benefit from the evolving tech landscape. Meanwhile, Siddharth Tyagi, Research Analyst at INVasset PMS, said Wipro offers the best risk-reward setup currently, with Infosys and HCL Tech looking attractive at lower levels. TCS remains fundamentally sound but may need a stronger demand catalyst to break out.
Disclaimer: 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.
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