Nifty IT index slides 14% YTD, sinks to 8-month low. What’s spooking India’s tech stocks? | Stock Market News

Indian stock market: The pain in Indian technology stocks is deepening with each passing day as signs of a slowing U.S. economy—where Indian tech giants have significant revenue exposure—are unsettling investor sentiment, leading to a severe sell-off on Dalal Street.

Additionally, diminishing expectations of multiple U.S. Fed rate cuts in 2025, coupled with global tech giants’ ongoing concerns about growth prospects, are contributing to prolonged weakness in IT stocks. 

The Nifty IT index tumbled another 2.17% in today’s intraday session, March 4, hitting an eight-month low of 36,797 points. However, the index recovered towards the closing bell, ending with a cut of 1% at 37,245 points. 

The index has closed in the red in 15 of the last 17 trading sessions, losing 13.5% of its value. This decline has brought its year-to-date (YTD) drop to 14%. Notably, the index ended February with a decline of 12.53%, marking its biggest monthly drop since April 2023, when it fell by 12.93%.

Eight out of 10 constituents of the index ended in negative territory in today’s trade, with LTIMindtree, Persistent Systems, and HCL Technologies posting losses of up to 3.1%. Other index stocks, including Infosys, Mphasis, Wipro, L&T Technology Services, and Tech Mahindra, also concluded the session with declines ranging between 0.3% and 2%. 

The recent crash has also pushed several stocks significantly lower from their one-year peaks. Based on the latest data, all 10 stocks in the index have fallen between 13% and 31% from their respective one-year highs, with LTIMindtree and Mphasis emerging as the top laggards, posting losses of 31% and 30%, respectively.

U.S. growth concerns weigh on IT stocks

The multiple rate cuts by the U.S. Federal Reserve in 2024 and Donald Trump’s victory in the U.S. presidential elections encouraged investors to add IT stocks to their portfolios. However, Trump’s trade policies have quickly become a cause for concern for investors, raising fears that they might lead to inflationary pressure and could slow down the U.S. economy.

The U.S. Federal Reserve has already taken note of Trump’s trade actions, prompting it to pause the rate-cut cycle in January. With trade tensions escalating globally, experts believe the Fed may keep rates higher for a longer period, which could negatively impact IT companies, as higher rates typically curb IT budget allocations by corporations.

During his election campaign, Trump pledged to reduce corporate taxes further. However, experts believe that if the trade war escalates, even a corporate tax cut will not be enough to encourage corporations to accelerate their expansion plans.

On Monday, Trump confirmed 25% tariffs on Canada and Mexico and imposed an additional 10% tariff on Chinese imports, doubling the 10% duty he had placed on Beijing in early February. Shortly after Trump’s tariff announcement, China and Canada responded with retaliatory measures, raising fears of a new global trade war.

Having worked to bring inflation down to near its 2% target, the Fed is now more concerned about rising prices and increasing unemployment. The January Federal Reserve meeting minutes showed that policymakers agreed they would need to see inflation decline further before lowering interest rates and expressed concern about the impact of President Donald Trump’s tariffs in achieving that goal.

U.S. consumers are also worried about the tariffs and have already expressed concerns about a potential rise in prices, which prompt them to cut back on spending. The PCE data released last week showed that personal income rose sharply in January, increasing by 0.9% for the month—more than double the expected 0.4% increase.

However, this rise in income did not translate into higher spending, which declined by 0.2%, contrary to the forecasted 0.1% gain. Meanwhile, the University of Michigan Consumer Sentiment Index fell to 64.7 in February, a nearly 10% decline—sharper than expected. Additionally, the five-year inflation outlook in the survey stood at 3.5%, the highest since 1995, signaling growing concerns among consumers.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.