Nifty IT Index Crashes 21%; Why Are Analysts Downgrading IT Stocks?

On March 12, 2025, the Benchmark Nifty IT Index entered a bear market, dropping approximately 21 percent from its peak. Morgan Stanley, an international brokerage, has downgraded India’s IT sector, lowering target prices for major players such as Infosys, Coforge, and TCS. 

The downgrade is attributed to increased macroeconomic uncertainties, including concerns over a potential US recession and shifts in the technological landscape, which are seen as key factors causing downside risks to revenue growth and valuation multiples in India’s IT services sector. 

Citi’s Concerns

Despite a steep correction of 21 percent, of which 16 percent fell in 2025 alone, brokerage firm Citi finds the index’s valuations expensive at 24 times one-year forward earnings. The heightened global uncertainty, particularly lower consumption behavior in the US, points to a tougher short-term outlook. Citi also noted that technological disruptions, especially in the AI segment and trends within the Global Capability Centres (GCC) are some additional concerns. 

Also read: Buffett Indicator Drops: Is the Indian Stock Market Fairly Valued Now?

Revenue Growth Projections

Citi anticipates a 4 percent revenue growth for the stocks in its coverage for  FY26, similar to its projections for FY25. It emphasized that improving margins in a competitive environment will be difficult for these companies even though the rupee depreciated to record lows. 

Citi’s Ratings on Tech Stocks

Last week, Citi has upgraded its rating on “Mphasis to “neutral” from its previous rating of “sell”. It prefers HCLTech and Infosys over its large-cap peers. Currently, Citi has a “sell” rating on nine stocks, which include Wipro, Tech Mahindra, TCS, and LTIMindtree and a “neutral” rating on three IT stocks, which include Infosys and HCLTech. 

On March 19, the Nifty IT index was the worst sectoral performer as it was still under selling pressure because of global uncertainties and a weaker earnings outlook. However, the Nifty IT Index turned green the next day and has been continuing its rally for the past four days, gaining around 4.16 percent since its fall on March 19. 

Written By Adhvaitha Nayani

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