Debasis Mohapatra
Bengaluru, 28 February 2025
Nifty IT Index has been under the bear grip since the beginning of 2025 in line with the broader market index. Notably, the IT index is down more than 13% year to date (YTD). In last one month, it is down more than 10%.
Though the fall of Nifty IT Index is in line with the benchmark indices, it dashed all hopes of outperformance of the sector in 2025. Here are some of the reasons for the losing streak of the IT index.
1- Uncertainty in US economy:
After Trump coming back to power, the US administration has imposed tariffs on various countries. These steps are aimed at bridging the ballooning trade deficit of the world’s largest economy. However, such imposition of tariffs has created uncertainty in the world economy with questions being raised over possible recovery in the US economy. Many experts feel such tariff war may increase inflation in the US economy and derail the recovery process. Indian IT companies draw more than 50% of their revenues from the US. That is the reason that investors are worries over future growth prospects of the Indian IT firms.
2- FII selling:
Indian equity markets have been witnessing constant selling of FIIs (Foreign Institutional Investors) as money being rerouted to other emerging markets like China and Brazil. Higher valuation of Indian companies, tepid Q3 FY25 earnings of India Inc and a depreciating rupee are the reasons FIIs are leaving Indian markets in recent days.
3- Tepid Q3 earnings of Indian IT firms:
Indian IT firms have reported tepid Q3 earnings, reflecting no meaningful recovery in the demand environment. Moreover, the advent of AI, and generative AI have created fears over disruption to established business models of the Indian IT industry. Meanwhile, Indian engineering services companies headwinds in terms of demand slowdown in the automotive sector.
4- Domestic slowdown:
Growth of Indian economy has slowed down owing to high inflation and high interest rate environment. Indian Inc has not invested in capital formation in recent years. High inflation has dampened consumption in urban areas. With less disposable income at hand, Indian investors are investing less in the equities.
However, the long-term growth story of Indian IT industry remains intact. Recently, industry body- Nasscom in a report projected that Indian IT industry is likely to grow by 6% to cross $300 billion mark in 2025.
