Aniket PujariIndian stock market: After a two-day relief rally, Indian technology stocks resumed their losing streak on Wednesday, March 19, as global brokerage firm Citi joined the list of other brokerages that turned cautious about growth in tech companies amid concerns over the U.S. economy.
The Nifty IT index plunged 2.2% to 35,804 points. Last week, it entered a bear market after falling 20% from its peak. At current levels, the index has corrected by 22%, marking a sharp reversal from the strong rally seen in 2024.
Stocks began their one-way slide as fears grew that the U.S. economy might slip into a recession, triggered by trade disputes initiated by Donald Trump with its closest trading partners. Rising trade fears are also dampening expectations for multiple US Fed rate cuts this year, adding pressure on tech stocks.
Nifty IT valuations remain rich
Citi stated that expectations of U.S. economic growth in Donald Trump’s second term as president during the October–December quarter did not materialise. Instead, uncertainty over U.S. economic growth has increased due to his protectionist policies.
Although the Nifty IT index has tumbled over 20% from its peak, the brokerage still finds valuations stretched, noting that the index continues to trade at a 30% premium to the Nifty 50. It pointed out that IT sector growth is lower than pre-COVID levels; while valuations may appear reasonable on a five-year basis, they are inflated by the high growth seen in 2021 and 2022.
The valuation of Indian IT companies has remained high since the pandemic, despite slower growth. In the medium term, IT firms will face challenges due to artificial intelligence disruption and slowing software growth, which could impact spending, it said. Free cash flow yield for India’s top IT companies stands at 3.5–4%, which Citi Research considers unattractive given the near-term outlook.
Citi expects the IT stocks it covers to see 4% revenue growth in fiscal 2026, similar to current fiscal year estimates. The brokerage has a “sell” rating on nine out of 12 stocks under its coverage. It upgraded Mphasis to “neutral” from “sell” but trimmed the price target to ₹2,395 per share from ₹2,720 per share.
Morgan Stanley, Motilal Oswal, and ICRA flag growth risks for Indian IT firms
Morgan Stanley also 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.
Domestic brokerage firm Motilal Oswal has also turned bearish on tech stocks, stating in its recent note that sentiment around IT services has become increasingly cautious from January to March. The brokerage noted that enterprises have adopted a “wait-and-watch” approach, with clients holding back on services spending despite a continued focus on capital expenditure (capex).
ICRA projects that Indian IT services companies under its coverage universe—which accounts for 60% of the industry in revenue terms—will witness moderate revenue expansion of 4-6% in USD terms in FY2026.
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.
