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After Tata Consultancy Services Ltd kicked off the earnings season with its slowest full-year revenue growth in four years, the big question now is whether the rest of the pack will echo the same story. India’s IT services companies were beginning to see improving demand for tech services in the US, their biggest market. But if the trade war unleashed by US President Donald Trump pushes his country into a recession, IT clients could tighten their discretionary spending budgets again, according to experts.
The jitters are already reflecting in the markets. Foreign investors offloaded $973 million worth of Indian in March, the biggest sell-off the sector has seen since April 2024. The index has dropped 24% year-to-date, sharper than the Nifty 50’s 4% fall.
Adding to that, IT services stocks as a share of the overall Indian assets under custody held by foreign institutional investors, dipped from 9.9% in February to 9% in March due to the ongoing geopolitical uncertainties, Institutional Securities said in a report dated 10 April. IT services, however, remain the second-largest sector held by in India.
Risk aversion has clearly crept into the IT counters. , , , , , Oracle Financial Services Software, , , , and shedding between 3% and 18% since the close of 2 April, when Trump announced additional tariffs on more than 180 nations, only to put them on pause a week later. “We have seen instances of delays in decision-making and discretionary spend come under heightened scrutiny and pressure recently," TCS’ chief executive K.
Krithivasan said during an earnings call on 10 April. However, based on conversations with clients, and expects clarity to emerge soon and companies to resume their tech transformation plans. Indian IT stocks: Beaten, but attractive While the US’ reciprocal tariffs do not directly apply to Indian IT services companies, the sector will not be immune to the wider economic shocks of the trade war.
A significant chunk of revenue for Indian IT firms flows from North America and Europe, “so some near-term uncertainty is inevitable", said Shibani Kurian, senior executive vice president and head of equity research at Kotak Mutual Fund. Analysing US downturns and their impact on Indian IT sales, Kumar Rakesh, IT and auto analyst at BNP Paribas India, said a 1.5 percentage point fall in the US’ GDP growth typically drags revenue growth for Indian IT services firms by around 5 percentage points.
That would translate to negligible growth for India’s IT sector this financial year. “We cut our FY26-27 earnings estimates (for Indian IT companies) by 4-11% and TPs (target prices) by 4-18% as we bake in a weak demand environment over the near-term and a gradual recovery in FY27," Rakesh said in a note dated 8 April. analysts added in a report dated 4 April that “A ~50% probability of a suggests that the next 3-6 months could bring further earnings cuts, withdrawn guidance, and a freeze in tech spending".
The brokerage cautioned that while the Indian IT sector’s valuations appeared more reasonable than in past US downturns, there was room for further correction in 2-3 quarters. Aniruddha Sarkar, chief investment officer and portfolio manager at Quest Investment Advisors, was ‘underweight’ on Indian IT stocks even before Trump announced the reciprocal tariffs, citing weak deal flows, margin compression, delayed project signing, and policy uncertainty. He added that although India’s IT sector now looked attractively priced on valuations he doesn’t see it delivering blockbuster returns anytime soon.
“At best, you’re looking at market-matching returns, maybe with some back-ended gains in the latter half of the fiscal," Sarkar said. Also read | Time to dip in? Trump’s decision on Thursday to pause implementation of the reciprocal tariffs by 90 days could be a game-changer for Indian IT stocks, said experts. But if there is any prolonged impact of the tariffs, that could weigh heavily on outlooks and valuations for Indian IT companies.
Some experts also warned that India’s IT services sector could still see second- or third-order ripple effects of the US’ trade war. Before the pandemic, large-cap Indian used to command a premium of about 25% over their mid-cap peers, said Amit Chandra, analyst at HDFC Securities. That script has now flipped—large-cap IT companies are trading at a discount of 13% to their mid-cap peers, which have seen their valuations rise from low double digits to over 20%, he added.
Still, Chandra believes the worst may already have been priced into the valuations of Indian IT stocks. “From here, the downside for the sector seems limited," he said. “It might be a good time to start dipping your toes into IT stocks—especially large caps that have taken a decent beating.
" Kotak Mutual Fund’s Kurian had a similar view. “Investors could consider staggered entry into IT stocks," she said, adding that when growth returns, the rebound in demand for IT services could be swift. In the meantime, high dividend yields across Indian IT counters are acting as a cushion, offering some downside support in a jittery market, Kurian said.
A high dividend yield means investors earn more income for every rupee invested, which not only provides a steady cash flow but also offers a layer of protection during a market downturn. According to Meeta Shetty, a fund manager at Tata Mutual Fund, India’s top IT companies, with improved cash flow conversion and higher payout ratios than pre-covid levels, are trading at an attractive free cash flow yield of 4-6%. However, sectors such as power, hotels, airlines, and pharma also look appealing amid the broader market correction, said Sarkar of Quest Investment Advisors, making it harder for IT stocks to compete for a spot in investor portfolios.
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