Nifty IT emerges as worst performing sector in H1 2025, down over 10%; all constituents in the red

India’s information technology (IT) sector has been at the receiving end of investor pessimism in 2025, with the Nifty IT index emerging as the worst-performing sectoral index so far this year. As of June 25, the index had declined over 10 percent year-to-date, even as the broader Nifty 50 posted gains of more than 8 percent during the same period. The underperformance has been attributed to a combination of global macroeconomic pressures, weak enterprise technology spending, and continued foreign institutional investor (FII) outflows.

Most major IT stocks have seen significant erosion in value in the first half of 2025. Tata Consultancy Services (TCS) led the fall with a 16 percent decline. Infosys dropped over 14 percent, while Wipro and HCL Technologies fell 12 percent and 10.5 percent, respectively. Mid-sized players such as Persistent Systems and L&T Technology Services slipped 6.4 percent and 8 percent, while LTIMindtree declined 4.5 percent. Tech Mahindra, Mphasis, and Coforge were relatively resilient but still ended in the red, down 1.5 percent, 1.1 percent, and 0.7 percent, respectively.

What’s Behind the Slide?

The sector’s weak performance is being driven by multiple factors. A key concern has been the outflow of FIIs from Indian equities, particularly in export-heavy sectors like IT. The global macroeconomic environment has also turned unfavourable, with persistent US-China tensions, slowing economic growth in major markets, and high interest rates adding to the uncertainty.

Moreover, the expected revival in IT spending by global clients has yet to materialise. Enterprises in the US and Europe are still taking a cautious stance on discretionary IT budgets, especially in the BFSI, retail, and automotive segments. Deal closures have been delayed, hurting the sector’s revenue visibility.

According to Motilal Oswal Financial Services, “Muted discretionary IT spending and weak client budgets, particularly in the US, continue to weigh heavily on investor sentiment.” The brokerage expects large-cap IT companies to face continued pressure on growth due to these macroeconomic challenges.

Earnings Underwhelming; Guidance Downgraded

While some companies managed to maintain margins through cost controls, revenue growth has largely been disappointing. HCLTech posted a stable Q4 FY25 performance, resulting in a modest 3 percent rally, but most peers fell short of expectations. Several firms have downgraded their forward guidance, citing weak demand and prolonged decision cycles from clients.

With earnings visibility remaining low, analysts have turned cautious, recommending a wait-and-watch approach until signs of a broader demand recovery emerge.

Broker Views

Despite the poor show so far in 2025, some market experts believe that the correction in IT stocks may offer a long-term buying opportunity for investors with a contrarian view. The sector is cash-rich, enjoys high return ratios, and could benefit once global growth stabilises and tech budgets improve.

However, until there is concrete visibility on client demand and deal closures, caution is likely to persist. “Investors may consider staggered investments in select quality names with a 12–18-month view,” analysts at ICICI Securities suggested.

Meanwhile, global brokerages remain divided in their outlook. CLSA maintains a cautiously optimistic stance, pointing to potential recovery in the BFSI segment, which could drive a V-shaped rebound. It sees value in select IT stocks, especially those with strong order books and sectoral tailwinds.

Morgan Stanley, however, is more defensive. The firm reported weak deal activity in its interactions with IT companies and warned that a turnaround, if it comes, will be slow and uneven. It sees room for further correction if earnings miss expectations in the coming quarters and has advised investors to book profits during any near-term rallies.

While CLSA finds current valuations attractive relative to long-term averages, Morgan Stanley noted that despite the correction, IT stocks still do not look cheap when weighed against muted growth forecasts.

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.