Why Are IT Stocks Falling ? Stocks to Watch

IT stocks witnessed a sharp decline in today’s trading session, with leading players like Coforge, Mastek, Tata Technologies, Wipro, Mphasis, and Tech Mahindra facing significant losses. The market turmoil comes amid concerns over the slowing US economy, persistent inflation, and delayed Federal Reserve rate cuts.

Key IT Stocks That Declined

• Mastek plunged 6.88%, closing at Rs 2,207.90.
• Tata Technologies fell 6.85%, trading at Rs 666.05.
• Newgen, Zensar, and Sonata Software recorded a 2% dip each.
• Mphasis, Tech Mahindra, Tanla Platforms, and Wipro dropped up to 6%.
• Persistent Systems and Cyient faced a 4-5% decline.

What’s Causing the IT Sector Sell-Off?

1. Economic Uncertainty in the US

Indian IT firms rely heavily on US clients, and uncertainty in the US economic outlook is impacting demand for IT services. The Q3 earnings of major IT players painted a bleak picture, sparking fears of a possible trade war.

2. Inflation and Fed Rate Cut Delays

Despite expectations of interest rate cuts, stubborn inflation in the US has delayed the Federal Reserve’s policy changes. This has shaken consumer confidence and negatively impacted corporate spending on IT services.

3. Weak Growth Guidance from Global IT Giants

Reports from Accenture and Capgemini indicate that the sector is not expecting organic growth acceleration in FY26, leading to concerns among investors. While Cognizant remains optimistic, analysts believe this is more of a company-specific turnaround than an industry-wide recovery.

4. Pause in Transformation Projects

Analysts at JM Financial have noticed that some large US banks are pausing their transformation projects. If this trend continues, it could significantly impact growth projections for FY26.

5. High Valuations and Market Dynamics

IT stocks historically perform well when the rupee depreciates or when the broader market faces earnings cuts. However, HSBC notes that the IT sector is currently trading at a 40% premium to the broader market, compared to a five-year average of 28%. This makes it difficult for IT stocks to outperform in the near term.

Stocks to Watch Amid the IT Sector Slowdown

While the IT sector is facing short-term headwinds, analysts recommend a flight to safety by investing in companies with strong earnings resilience and valuation buffers.

• TCS and Infosys remain top picks due to their stability and consistent performance.
• Kotak Securities prefers Infosys and Tech Mahindra among Tier 1 players.
• Mid-tier picks include Coforge, Indegene, and LTIM.

Despite ongoing challenges, the long-term outlook for the IT sector remains positive, especially with advancements in AI and automation. However, increased efficiency in software development and cost reductions in IT services may lead to revenue compression in the medium term.

Conclusion

The sharp decline in IT stocks reflects broader macroeconomic uncertainties rather than fundamental weaknesses in the sector. While near-term risks persist, selective investments in fundamentally strong IT companies could prove beneficial in the long run. Investors should stay cautious and track market trends before making investment decisions.

Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Please consult a financial advisor Mbc trading Platform  before making any investment decisions.