Fears of US Recession Haunt Indian IT Stocks

Investors are sensing the likely risk that may arise for Indian IT services providers with rapid adoption of AI-powered models and solutions. When global tech giants and many Indian startups have commented that they wouldn’t require as many people as earlier due to faster adoption of AI solutions, investors are sensing risk -- Pareekh Jain, founder, Pareekh Consulting, tells Bizz Buzz

Bengaluru: Investors are increasingly worried over a mild recession in the US economy amid Trump tariffs, prompting them to pull out money from IT stocks in India. Moreover, sweeping changes brought in by AI & generative AI are making investors nervous over its possible impact on business models of Indian service providers. Analysts are of the opinion that these factors are playing out in the equity market in India, where IT index has been hammered in recent months.

Nifty IT index has been one of the worst performers this year so far. It has given a negative return of 20.07 per cent year-to-date (YTD). Most of the fall has been witnessed in the last one month, when the index fell 14.36 per cent.

According to analysts, IT firms may not see much growth this year as projected earlier given the uncertainty around economic growth in the US, which contributes more than 50 per cent of Indian IT firms’ revenue.

“Investors are sensing the likely risk that may arise for Indian IT services providers with rapid adoption of AI-powered models and solutions. When global tech giants and many Indian startups have commented that they wouldn’t require as many people as earlier due to faster adoption of AI solutions, investors are sensing risk,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, told Bizz Buzz.

He also said that growth uncertainty in the US is dampening investor sentiment further. Amid ongoing tariff war, US economy is facing the risk of a mild recession, many feel. According to JP Morgan, there is 40 per cent chance of an US recession amid tariffs imposed by the Trump administration. US has imposed sweeping 25 per cent tariffs on all steel and aluminium imported into the country recently in its bid to make a leveling the playing field for US manufacturing. To counter this move, European Union has come up with retaliatory measures, creating fears of inflation in the US economy.

Meanwhile, many brokerage firms have started downgrading Indian IT firms owing to earnings revision in coming quarters. Morgan Stanley has sounded an alarm on the earnings outlook for the Indian IT sector and expects the companies to clock in lower revenue growth in 2026-27. The brokerage firm also downgraded its rating on Infosys’ stock to ‘equal-weight’ from ‘overweight’, leading to a 4.3 per cent fall in the stock on Wednesday. Most other IT stocks have also been facing intense sell-off from FIIs in recent months.