Nifty IT plunges over 20% from recent highs; here's the key overhang

Continued heavy selling in information technology (IT) stocks has dragged the Nifty IT index down more than 20 per cent from its recent high levels. Frontline IT players such as Infosys Ltd, Tata Consultancy Services (TCS), HCL Technologies Ltd and Persistent Systems Ltd slumped on Friday, extending their recent losses.

The weakness in IT counters came amid concerns about AI-led disruption and an ongoing correction in US technology stocks. Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd (MOFSL), said, "Weakness in IT shares followed fading expectations of a near-term US Fed rate cut after better-than-expected January jobs data in the US and investors' fear that new advanced AI models could automate several traditional IT services, potentially impacting future business growth."

Echoing similar concerns, Ravi Singh, Chief Research Officer at Mastertrust, said, "IT stocks are currently facing sustained pressure, with the Nifty IT index down more than 20 per cent from its recent peak and underperforming the broader Nifty this year. Large-cap names have corrected meaningfully as investors reassess growth expectations. AI disruption concerns have added another layer of uncertainty. While automation may compress traditional billing models, it also opens new revenue streams. The market is currently pricing in more risk than opportunity."

Singh also flagged a key macro overhang for the sector. "One major overhang is the sharp rise in US 10-year bond yields, which are hovering around the 4 per cent mark. Higher yields typically reduce appetite for growth-oriented sectors like technology. At the same time, the US Dollar Index remains firm near the 103–105 zone, which is supportive for IT margins in theory but also signals tighter global liquidity. For domestic equities, IT weakness is weighing on sentiment, though broader markets remain supported by domestic flows," he stated.

Singh concluded that stability in bond yields and clarity on deal pipelines will be crucial for a recovery in IT stocks going ahead.