The Indian IT sector is facing significant challenges, with stocks experiencing a marked decline for the second day in a row. On Friday, the Nifty IT index plummeted by over 3.5%, marking its lowest point in nine months. This downturn is largely attributed to steep losses in major companies, including Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies, and Coforge. The previous day had already seen a 4.21% drop following U.S. President Donald Trump’s announcement of reciprocal tariffs, raising fears about a potential recession in the United States.

The Effects of U.S. Tariffs on Indian IT

On April 2, 2025, President Trump proclaimed ‘Liberation Day’ and introduced a 26% tariff on imports from India. This decision impacts crucial sectors such as textiles, electronics, gems, and engineering goods, amplifying concerns regarding India’s competitiveness in global trade. As a result, the Indian IT sector has been struggling, with the Nifty IT index falling over 27% from its peak over the past six months.

Om Ghawalkar, a market analyst at Share.Market, pointed out that while companies heavily dependent on physical exports are directly affected, IT giants like Infosys, TCS, and HCL Technologies may not face immediate repercussions, since the tariffs mainly target goods rather than services. However, he warned of indirect threats; rising inflation in the U.S. could lead to reduced discretionary IT spending by American firms, further jeopardizing an already vulnerable sector.

Implications for IT Companies

Analysts from Geojit Financial Services emphasized the broader implications of U.S. trade policies on Indian IT companies. They noted:

• Tariffs are increasing operational costs.
• A global slowdown is curbing spending on outsourced IT services.
• U.S. Banking, Financial Services, and Insurance (BFSI) clients, who account for approximately 60% of revenue, may face financial pressures leading to contract renegotiations and budget cuts.

Consequently, investments in new technologies are stalling, with many projects postponed due to recession fears. To navigate these challenges, Indian IT firms are prioritizing cost optimization, exploring new markets, and diversifying their service offerings.

Evaluating Key Indian IT Stocks

Ghawalkar has analyzed prominent Indian IT stocks based on five essential criteria: Momentum, Value, Sentiment, Volatility, and Quality. Each stock is rated out of 5 to assist investors in assessing price trends, valuation, and overall financial health.

• Infosys: Displays moderate momentum (3/5) and is fairly valued (3/5). It stands out with a high-quality rating (5/5) but has a bearish sentiment score (2/5).
• TCS: Despite being India’s leading IT provider, TCS shows weak momentum (1/5) and is also fairly valued (3/5). Its quality metrics are strong (5/5), though sentiment remains low (2/5).
• Wipro: Stands out with robust momentum (5/5) and is fairly valued (3/5). With a high-quality score (5/5) and low volatility (5/5), it indicates strong investor confidence (sentiment score of 4/5).
• HCL Technologies: Similar to Infosys, it has moderate momentum (3/5) and is fairly valued (3/5). It also scores high in quality (5/5) but has a sentiment score of 2/5, suggesting cautious market outlook.

Long-Term Investment Perspectives

Chirag Kachhadiya, a Senior Research Analyst at Ashika Stock Broking, suggests that while Indian IT firms may not feel direct effects from U.S. tariffs, restrictive trade policies could still indirectly impact technology spending. He recommends TCS as a long-term buy, especially since its share price has dropped by 20% over the last four months, making it a more attractive investment option.

As trade negotiations between India and the U.S. unfold, the long-term outlook for the IT sector remains uncertain. While large-cap IT stocks may provide stability, investors are encouraged to consider mid-cap opportunities for potential growth.