IT Stocks Rally Sharply as India-US Trade Agreement Eases Tariff Concerns
Information technology stocks experienced a significant surge on Tuesday, riding a broader rally in the Indian stock market. This upward movement followed the announcement by US President Donald Trump that India and the United States have successfully reached a comprehensive trade agreement. A key component of this deal involves the reduction of reciprocal tariffs on Indian goods to 18%, a substantial decrease from the previously proposed 50% rate. This development has significantly alleviated concerns for export-oriented sectors, injecting optimism into the market.
Top Performers and Market Momentum
Within the Nifty IT index, several companies emerged as the top gainers. Persistent Systems, Coforge, Infosys, Mphasis, and Oracle Financial Services Software shares led the charge. Major industry heavyweights also contributed strongly to the rally, with HCL Technologies, Tata Consultancy Services (TCS), LTIMindtree, Wipro, and Tech Mahindra all recording impressive gains. This collective performance drove the Nifty IT index to climb by nearly 6% during the trading session.
The positive sentiment generated by the India–US trade deal triggered a sharp and widespread rally across equity markets. Benchmark indices, the Sensex and Nifty 50, jumped approximately 4%. Sectors with high exposure to the US economy were at the forefront of these gains, as improved trade visibility significantly boosted investor confidence. This agreement follows the recently announced India–European Union Free Trade Agreement (FTA), further strengthening India's external trade outlook and positioning.
IT Sector Outlook and Revenue Dependence
India's information technology sector derives a substantial portion of its revenues from the United States. The easing of trade tensions between the two nations is expected to provide a further lift to sentiment within this critical industry. Market participants believe this latest development will allow investors to refocus on the improving trajectory of corporate earnings growth, which has shown sequential improvement over recent quarters, supported by a favourable revision trend.
Improved visibility on client spending and enhanced deal momentum from US-based customers are anticipated to support growth for Indian IT firms. According to Motilal Oswal Financial Services, all major IT stocks, including Infosys, TCS, Persistent Systems, and Coforge, stand to benefit from the India–US trade deal. This sentiment revival comes after previous setbacks linked to visa-related issues and negative perceptions surrounding outsourcing. The deal is also expected to improve deal momentum from US clients.
Expert Analysis and Macro-Predictability
Market expert Avinash Gorakshakar highlighted that India's IT sector derives over 50% of its revenue from North America. He believes this trade agreement provides much-needed macro-predictability for the industry. "Although we all know IT services are generally exempt from direct merchandise tariffs, the broader trade normalization is a major sentiment booster," Gorakshakar stated. "The deal reduces the risk of 'tit-for-tat' protectionism that threatened to compress enterprise tech budgets. Regarding IT stocks, they remained oblivious of the recent rally witnessed in broader markets. I see IT stocks remain fundamentally attractive."
Gorakshakar further noted that HCL Technologies and Tech Mahindra offer strong value on a price-to-earnings basis. Meanwhile, mid-cap players like eClerx Services and Mphasis appear "cheap" relative to their historical growth multiples and cash-flow generation, presenting potential opportunities for investors.
Budgetary Impact on the IT Industry
The recently announced Union Budget 2026-2027 contained several provisions relevant to the IT services industry. These include a change in taxation policy that treats buyback proceeds as capital gains. Analysts view this as a marginal positive for shareholders, potentially supporting increased buyback activity within the IT sector.
Kotak Institutional Equities commented on other budgetary measures: "A downward revision of safe harbor margins and broader thresholds simplifies compliance, but is largely an administrative update. Additionally, a tax holiday for foreign companies using data center services provided by Indian entities for providing cloud services globally makes the Indian data center ecosystem marginally more lucrative for foreign firms."
This confluence of positive trade news and supportive budgetary measures has created a favourable environment for India's technology sector, driving the notable stock market performance observed on Tuesday.
