Nifty IT slides 3.7% to May 2023 low on outlook

Profit booking hits IT shares across the board

Indian IT stocks saw sharp profit booking on Tuesday, pushing the Nifty IT index down 3.6% to 3.7% and taking it to its lowest level since May 2023. The selloff was sector-wide, with all 10 constituents trading in the red. The index also extended losses for a second straight session and emerged as the top sectoral loser on the NSE. Over the last two sessions, the Nifty IT index has fallen nearly 4.5%, highlighting how quickly sentiment has turned risk-averse.

The pressure was visible across large-caps and mid-caps, and it came alongside fresh concerns about demand visibility for traditional IT services. The backdrop included uncertainty on the US interest rate path ahead of key inflation data, and renewed anxiety on how fast enterprise spending is shifting toward artificial intelligence.

What drove Tuesday’s decline

Analysts attributed the weak tone to a combination of fundamentals and macro uncertainty. HSBC said in a Tuesday note that March-quarter earnings and FY27 outlooks from India’s top-tier IT firms largely missed expectations. The brokerage also flagged that strong global spending on artificial intelligence could be “crowding out” spending on traditional IT services.

Those concerns were amplified after OpenAI said it is launching a new company backed by more than $1 billion to help organisations build and deploy AI, including by embedding engineers into organisations to identify high-impact AI use cases. In the market’s reading, moves like this reinforce competition for enterprise technology budgets, at a time when IT services demand is already under scrutiny.

Biggest losers: Persistent Systems, TCS, LTIMindtree

On the day, Persistent Systems was the biggest laggard, falling up to 5%. Tata Consultancy Services (TCS) declined up to 4.27%, and LTIMindtree fell up to 3.96%. Other frontline names including Infosys, Tech Mahindra, HCL Technologies, Wipro and Coforge dropped between 2% and 4%.

In early trade, another snapshot of the selloff showed the Nifty IT index down 2.86% at 28,490.60. Infosys fell 3.24% to Rs 1,138.90, while TCS declined 2.76% to Rs 2,326.80. Coforge slipped 3.23%, Persistent Systems fell 3.12% and Mphasis declined 3.06%. Tech Mahindra dropped 2.81%, LTIMindtree fell 2.80%, HCLTech slipped 1.98% and Wipro was down 1.67%.

US rates and CPI uncertainty add to caution

Investors were also positioned cautiously ahead of US consumer price index (CPI) data due later in the day, as it could offer cues on the Federal Reserve’s next steps. Higher US interest rates generally weigh on IT stocks because they can raise recession risks and lead clients in key overseas markets to cut technology spending or delay discretionary projects.

Selling pressure also intensified after major brokerages scaled back expectations of US rate cuts this year. BofA Global Research and Goldman Sachs cited elevated inflation due to rising energy prices and continued strength in the labour market as reasons behind their revised outlook.

Why the US matters so much for Indian IT

India’s $115-billion IT sector, equivalent to around Rs 26.3 lakh crore, derives nearly 57% of its revenue from the US market. That exposure makes the sector sensitive to US economic uncertainty and corporate technology spending trends. When client budgets tighten, the immediate impact is often felt in deal decision cycles, ramp-ups, and discretionary project starts.

This dependence also explains why macro headlines can move Indian IT stocks even in the absence of a domestic trigger. Even though a weaker rupee can support exporters by increasing the rupee value of dollar earnings, market focus on Tuesday remained on growth risks and demand visibility.

AI spending shift and the “crowding out” concern

HSBC’s note put a specific spotlight on how global AI investment could be displacing spending that would otherwise go to traditional IT services. The Reuters report described OpenAI’s new venture as a fresh challenge to Indian IT firms’ business model from a major AI company targeting enterprise clients.

The sector has already faced disruption concerns through 2026, including a February rout after the roll-out of Anthropic’s Claude Code and fears that rapid advances in generative AI would disrupt demand for traditional IT and professional services. HSBC also said Indian IT stocks are unlikely to attract positive investor interest unless global AI activity, cloud capex growth and cloud revenue momentum slow.

Key data points to track

Earnings season has not eased concerns

March-quarter results did little to calm investors, according to Reuters. At TCS, dollar revenue shrank 0.5% year-on-year to $10 billion for the year ended March, the first decline since the company’s 2004 IPO. On the operational side, HCL Tech CEO C Vijayakumar said it took “25%-30% more effort to convert and get to the same number” in terms of total contract value, indicating tougher deal closures.

Separate earnings-related updates also pointed to subdued momentum and cautious guidance. Infosys forecast annual revenue growth below analyst expectations on April 23. In another report, HCLTech’s Q4FY26 net profit was Rs 4,488 crore (up 4% YoY but below expectations), with revenue at Rs 33,981 crore. TCS reported Q4 net profit of Rs 13,718 crore and revenue of Rs 70,698 crore, while reporting FY revenues of Rs 2,67,021 crore.

Market impact: pressure extends beyond IT charts

Beyond company-specific drivers, broader market conditions added to risk aversion. Reuters noted the wider market remained under pressure, with the rupee sliding to a record low on elevated crude oil prices amid lack of success in talks to end the US-Israeli war with Iran. Another report also cited the fragile US-Iran ceasefire and surging crude oil prices as factors rattling global financial markets.

For IT investors, this mix matters because it influences both valuation appetite and client confidence in key markets such as the US and Europe. Even when currency tailwinds exist, equity markets can discount them if demand concerns dominate.

Analysis: why this move matters for investors

The day’s fall matters because it reinforces that the current IT correction is being driven by multiple overlapping risks: softer earnings and outlook commentary, AI-related budget shifts, and a less supportive US rates narrative. The scale of the 2026 underperformance is also notable: Indian IT stocks have slid 25.4% so far this year, making them India’s worst-performing sector, compared with a 9.7% decline in the Nifty 50.

Another measure of stress came from a separate report stating Indian IT stocks have lost about $115 billion in market value over the past four months. That context helps explain why even incremental negative cues, such as changes to rate-cut expectations, can trigger outsized reactions.

Conclusion

IT stocks extended their selloff on Tuesday, sending the Nifty IT index to its lowest level since May 2023 as weak earnings outlooks, demand worries and US rate uncertainty weighed on sentiment. The next immediate cues highlighted in reports include US CPI data and further clarity on how client budgets are being allocated between AI initiatives and traditional IT spending.