The Nifty IT index has officially slipped into bear market territory, experiencing a significant decline of over 21% from its peak of 45,995.80, reached in December 2024. This downturn signals rising apprehensions regarding the sector’s growth potential, primarily fueled by fears of an impending recession in the U.S. and a cautious approach from clients towards spending. Even as the broader market showed signs of recovery in March, the Nifty IT index has notably lagged, suffering a 2.3% drop this month alone.

2025: A Steep Decline Continues

As of now, the index has plummeted 16% in 2025, extending the downward trend witnessed in the previous months. In February, the IT sector saw a decline of 12.5%, while January recorded a loss of 1.5%. This persistent weakness is largely attributed to diminishing demand from North America, which is the primary market for many Indian IT firms.

“The Nifty IT index has faced a 16% decline early in 2025, influenced by fears of a U.S. recession, careful client spending, and escalating competition from AI,” stated Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities. He further noted that the weakening rupee, which usually provides support, has done little to alleviate global demand worries. Downgrades from international brokerages and a subdued growth outlook have also weighed heavily on market sentiment.

Long-Term Optimism Despite Challenges

Despite the current struggles, Sheth remains hopeful regarding the sector’s future. “With solid fundamentals, ongoing digital transformation, and potential stabilization in global demand, we cannot dismiss the possibility of a recovery in the medium term, particularly if macroeconomic challenges diminish and client spending increases,” he added.

Major Players Experience Significant Losses

All companies within the Nifty IT index have faced declines so far in 2025. Notably, Coforge has been the worst performer, plummeting 22%. LTIMindtree closely follows with a 20% drop, while Persistent Systems, Mphasis, and HCL Technologies each saw declines of 19%.

Heavyweights like Infosys, Tata Consultancy Services (TCS), Tech Mahindra, and Wipro have also recorded substantial losses, falling between 13% to 16%.

Downgrades and Sentiment Shift

According to a recent report from Motilal Oswal Financial Services (MOSL), the sentiment surrounding IT services has grown increasingly cautious from January to March. The report indicates that enterprises are adopting a "wait-and-see" strategy, with clients refraining from spending on services, even though they remain focused on capital expenditure.

MOSL has downgraded Infosys to "neutral," Wipro to "sell," and L&T Technology Services to "neutral," citing valuation concerns. The brokerage warned that a significant rebound in discretionary spending for FY26 appears unlikely, contrasting previous expectations. However, MOSL holds a selectively positive view on LTIMindtree and TCS, highlighting a more favorable risk-reward scenario for these stocks.

Technical Outlook: Anticipating Further Weakness

Rajesh Palviya, Senior Vice President and Head of Technical and Derivatives Research at Axis Securities, pointed out that the Nifty IT index is currently in a short-term correction phase, characterized by lower tops and bottoms. He noted that the index is trading below its 20, 50, 100, and 200-day simple moving averages (SMA), further reinforcing its bearish outlook.

Palviya identifies critical support for the index at 36,800. “If it falls below this level on a closing basis, we could see further declines toward 35,500–34,200. On the upside, resistance appears at 38,400, with potential targets for a bounce-back at 39,000–40,500,” he explained. He suggested that traders might use these levels to exit positions, while long-term investors could consider accumulating stocks during significant dips.

Short-Term Recovery Likely

Om Mehra, a Technical Analyst at SAMCO Securities, noted that the IT index is currently trading below its 9-day and 20-day exponential moving averages (EMA), indicating ongoing weakness. However, he highlighted a double-bottom formation on the daily chart, suggesting a potential for a short-term recovery.

The immediate support for the index is seen at 36,200, aligning with the 161.8% Fibonacci retracement level, a significant technical floor. Mehra anticipates a slow and gradual recovery, estimating resistance around the 39,000–40,000 range, while dismissing the likelihood of a sharp V-shaped recovery.

Conclusion

In conclusion, the Nifty IT index’s entry into bear market territory reveals the growing challenges the sector faces, driven by weak demand, cautious spending, and macroeconomic uncertainties. While technical indicators hint at a potential short-term bounce, the broader outlook remains dimmed by fears of a global recession and muted growth prospects.