The Indian equity benchmark, the Nifty 50, has scaled a fresh all-time high, a feat not achieved in roughly 14 months. This bullish momentum, however, casts a stark shadow on the technology sector, where the Nifty IT index continues to struggle significantly. The IT index is currently trading more than 20% below its historic peak of 46,088, which it touched in December of the previous year.
This divergence in performance is starkly evident in the year-to-date (YTD) figures. While the Nifty 50 has posted a healthy gain of 10.81% so far this year, the Nifty IT index has moved in the opposite direction, registering a decline of 13.36% on a YTD basis. This underperformance positions IT as one of the weakest sectors in the market for the year 2025.
Root Causes of the IT Sector's Underperformance
The slump in Indian IT stocks is attributed to a confluence of cyclical and structural challenges. A primary factor is the sluggish growth in revenue and profits reported by major companies. This slowdown is closely linked to global headwinds, particularly policies emanating from the United States.
Analysts point to the stringent tariffs imposed by US President Donald Trump on imports from India and other nations. Since Indian IT firms derive a substantial 60–70% of their revenues from the US and European markets, these tariffs have triggered worries about reduced discretionary spending by American clients. Furthermore, Trump's administration has increased fees for H-1B visas, adding to the sector's cost pressures.
"The sector has been disproportionately impacted by the global tariff war," explained Prashanth Tapse, Research Analyst and Senior Vice President of Research at Mehta Equities. He added that the spillover effects from recessionary fears, elevated interest rates, and tightening corporate technology budgets have been significant. This environment has led to prolonged decision-making cycles and a deferral of discretionary digital transformation projects.
Earnings Outlook and Brokerage Views
The second-quarter earnings for FY26 (2QFY26) offered a slight respite, largely because expectations were already low and the quarter is seasonally strong. According to a report from Motilal Oswal Financial Services, performance was mixed among top-tier firms.
HCL Technologies stood out by raising its services revenue guidance on the back of robust deal wins. LTIMindtree managed to beat expectations for both revenue and profit margins. In contrast, Infosys maintained its full-year guidance, suggesting a gradual recovery, while TCS conveyed a cautious demand outlook for the second half of the year.
The brokerage firm stated, "We remain constructive on the sector, as near-term earnings upside appears limited. Valuations are not the problem anymore, but questions are being asked of the structural demand outlook." They believe a sustained re-rating will require clear evidence that spending on Generative AI (GenAI) is translating into meaningful revenue growth.
Technical Analysis and Future Catalysts
Despite the fundamental challenges, technical analysts see signs of a potential turnaround. On a recent trading session, the Nifty IT index traded in positive territory. Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, noted that the index has shown clear signs of bottoming out after forming a base near the October lows of 33,500.
"A bullish crossover between the 20-SMA and 200-SMA is visible on the Nifty IT chart, reinforcing the improving sentiment," Bhosale observed. He anticipates a catch-up rally in the IT space in the coming weeks and views any dips as buying opportunities.
Echoing this view, Drumil Vithlani, Technical Research Analyst at Bonanza, said the index has formed a rounded base. He suggests that a breakout above the 38,000 level could trigger a rally towards the 39,500–40,000 range.
For a sustained recovery, analysts highlight key catalysts. These include a formalization of US-India trade agreements, a more accommodative stance from the US Federal Reserve with potential rate cuts, and a stabilization of enterprise confidence leading to a rebound in global tech expenditure. The recovery is expected to be uneven, with large-cap firms likely rebounding first due to stronger client relationships.
