Investors Must Weigh All Variables Before Putting Money In IT Stocks This Year

As the year 2025 begins, the Indian IT industry is oozing with confidence of better times. After what was a subdued first half last year, IT companies are hoping for a demand recovery across the global IT industry. This stems from the fact that the key market, the US, is showing first signs of green shoots. With Donald Trump all set to take over as the President of the US on January 20, technology spending is likely to get a boost.

Proposals like cut in corporate taxation and easy monetary policy are expected to supplement the growth. In the meanwhile, a couple of factors exist that need to be kept in mind before investing in IT stocks. Foremost, is that the rupee has been depreciating against the US dollar in recent months, which, as of now, has been around three per cent to hover around a 85.60 level. All indications are that it is likely to further weaken against the dollar.

This can give a leg up to the earnings of Indian IT firms, which earn more than 30 per cent of their revenues from the United States. Secondly, technology spending by enterprises is a function of higher disposable capital with them. As the Trump administration is likely to cut corporate tax rates, there is every possibility that companies would have more cash in their hands, indicating that technology spending will be higher due to which discretionary spending getting a boost. Many IT firms, which have higher share of revenue coming from digital space, will benefit if this happens.

Thirdly, the Indian IT industry has been witnessing a growing momentum of GCCs (global capability centres) and augurs well for the overall industry. Finally, the country is seen as the talent hub of the world with most AI talent residing in the country. As the industry bets big on AI, India will continue to hold pole position in terms of talent availability.

Amid this, though, there is a possibility that the industry may face some headwinds in 2025. Firstly, while the US is showing growth recovery, Europe is slipping in terms of technology spend in recent quarters. With big European economies like Germany and the United Kingdom struggling with high inflation, demand from the continent is likely to slow down this year. Secondly, Trump’s supporters have started sparring over the popular immigration programme ‘H1B visa programme’. It implies that the Trump administration may not take a lenient approach towards the immigration programme in the coming quarters.

While large Indian IT firms have substantially reduced their dependence on H1B visa programme in recent years, this is not the case with many mid-tier IT firms, which may have to spend more to get projects executed at onsite locations by hiring subcontractors. Notably, stock market performance of IT firms is a function of earnings growth. Therefore, investors should weigh all variables at play before putting in money in IT stocks this year. Moreover, many specific issues of some companies will play out in the coming quarters, which need to be kept in mind.