Nifty IT slumps for 4th straight day, hits 8-month low; Infosys biggest drag

Indian stock market: The sharp sell-off in domestic technology stocks shows no signs of reversal as they extend their losing streak for the fourth consecutive trading session on Wednesday, March 12, sending the Nifty IT index tumbling another 4.1% in today's trade, hitting a 8-month low of 35,988 points and taking the four-day cumulative fall to 6%.

Domestic technology stocks have been under severe selling pressure in recent months amid a series of weak U.S. economic data, which indicate signs of an economic slowdown and have also raised fears of a potential recession.

These concerns have also been noted by analysts, prompting them to turn bearish on Indian IT companies, (derives 50-70% of their revenue from the U.S.), with the latest downgrade coming for Infosys. For the first time in 11 years, domestic brokerage firm Motilal Oswal downgraded Infosys to 'Neutral,' citing growth concerns. 

Likewise, global brokerage firm Morgan Stanley also trimmed its rating on the stock to ‘equal weight’ from ‘overweight’ and cut its target price to ₹1,740 per share from the previous target of ₹2,150, citing concerns over slowing growth and valuation pressures.

Amid multiple rating downgrades, Infosys shares tanked 5.5% to touch an 8-month low of ₹1,547 apiece. The stock’s decline is heavily weighing on the index, as it alone contributed 592 points (38%) to the 1,547-point drop in the Nifty IT index. The weakness in IT stocks is also weighing on the overall market, dragging the Nifty 50 down 0.70% to the day's low.

Morgan Stanley expressed concerns about the broader Indian IT services sector, noting emerging downside risks to revenue growth and valuation multiples. The brokerage highlighted that a combination of lower real and nominal GDP growth in the U.S., along with an ongoing technology transition cycle, is creating headwinds for Indian IT companies.

Stocks struggle amid trade worries, limited Fed rate cuts

Global trade tensions have been escalating due to fluctuating Trump tariff decisions, raising investor concerns about a slowdown in the U.S. economy and the possibility of a recession.

Investors have been expressing these concerns by moving away from risky assets, causing stocks to fall to levels not seen in many months and wiping out billions in wealth as they rush to safe-haven assets to safeguard their portfolios.

Trump officially launched the trade war on March 4, and since then, he has been making adjustments to policies, such as pausing tariffs on some goods from Canada and Mexico while increasing additional 10% tariffs on Chinese products, raising them to 20%. He also announced tariffs on all steel and aluminum imports to 25% on Tuesday, removing all exemptions from his 2018 tariffs on metals.

Meanwhile, his administration is also working to impose reciprocal tariffs on countries such as the European Union, Brazil, India and South Korea, with reports suggesting an official announcement could come in early April.

Escalating trade tensions are raising concerns among American companies as high tariffs threaten to weaken sales. Investors have taken note, recognizing that lower sales may force companies to cut technology budgets, leading to fewer order wins for IT firms. Amid these worries, investors are rapidly pulling funds out of technology stocks, causing the tech-heavy Nasdaq to drop 12.5% in less than four weeks and the Nifty IT index to decline 22% from its recent peak.

"Clients are likely adopting a wait-and-watch approach as the new US administration's stance on tariffs, along with lingering geopolitical tensions, adds to the volatility and could take time to stabilize," said Motilal Oswal.

While Trump has said his policies could cause short-term pain, concerns about their economic fall-out intensified over the weekend after he declined to predict whether his economic policies would cause a recession.

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.

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.