The country’s top five software services companies, including Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, Wipro Ltd, and Tech Mahindra Ltd, dropped as much as 1.99%, 4.28%, 1.91%, 3.44%, and 2.8%, respectively, on Wednesday’s close.
This selloff erased ₹75,414 crore from the market cap of the top five companies in the sector alone.
These companies had a tough outing last year as macroeconomic uncertainties prompted their clients, including the world’s largest companies, to pull back non-essential tech spending.
Analysts expected a revival in tech spending and subsequent growth for India’s IT service providers, but they are now unsure of a speedy recovery. While Morgan Stanley, Kotak Institutional Equities, and Motilal Oswal Financial Services flagged concerns surrounding demand revival for the country’s IT sector on 11 and 12 March, JM Financial highlighted its worries late last month.
“We believe macro indicators and other lead indicators are pointing to a slower recovery in revenue growth in FY26 vs our prior expectations,” said Morgan Stanley analysts Gaurav Rateria, Sulabh Govila, and Sakshi Rana in a note dated 11 March. They attributed the negative macroeconomic scenario to the early anticipated effects of restrictive trade and immigration policies in the US.
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TCS, Infosys, HCLTech, Wipro and Tech Mahindra ended last year with $29.1 billion, $18.6 billion, $13.3 billion, 10.8 billion, and $6.3 billion in revenue last year. While TCS, Infosys, and HCLTech grew 4.1%, 1.9%, and 5.4%, respectively, Wipro and Tech Mahindra reported a revenue decline of 2.2% and 5%, respectively.
Growth was steady for three of the top five in the first nine months of FY25. TCS and Infosys’ revenue grew 4.6% and 3.9% year-on-year, respectively, during the period. For HCL Tech, it rose 5.1%. Wipro’s April-December revenue fell 4.2% over a year earlier, while Tech Mahindra’s declined 0.3%.
Developments in the US are a barometer of the health of homegrown software service providers as they get most of their revenue from clients based in the US. India’s five largest IT outsourcers get between $3 billion and $16 billion of their full-year revenue from the Americas, translating to almost half of their overall revenues.
“With the new technology cycle ongoing, we now see the likelihood of a “transition phase” as spending gets re-prioritized and growth rates moderate for a prolonged period. In this context, we lower our revenue growth forecasts for the sector as a whole for F26-27,” added the Morgan Stanley analysts.
Motilal Oswal analysts raised a similar concern, adding that demand revival for non-essential tech spending might not be as quick as expected.
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“While higher-for-longer interest rates remain a headwind, the bigger concern is rising uncertainty. Clients are likely adopting a wait-and-watch approach as the new US administration’s stance on tariffs, along with lingering geopolitical tensions, adds to the volatility and could take time to stabilize,” said Motilal Oswal in a note dated 11 March. “The short-term volatility is likely to delay discretionary spending recovery, prompting us to temper our expectations for a meaningful FY26 rebound, particularly for large-caps.”
High lending rates delay companies’ ability to take loans that could be used for tech spending, while high tariffs make it tougher for companies to run their businesses as sourcing equipment becomes tougher.
A third brokerage said the pullback of non-essential spending, while evident, was not on account of the Trump administration.
“Discretionary spending remains muted and will remain at similar levels for at least the next quarter. Companies are prioritizing cost savings, including from savings from IT, providing vendor consolidation opportunities,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S, and Vamshi Krishna, in a note dated 12 March. “The macro uncertainties under the Trump administration are not top concerns for clients yet. The focus is on becoming agile enough to respond quickly to changes.”
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Still, this scepticism is not new.
Mint reported last month that two other brokerages raised similar concerns about the growth of the country’s IT sector.
“IT Services’ 3QFY25 results were, in general, marginally better than expectations…3Q results, however, appear a distant memory now. Uncertainty has crept in the economic outlook since. Trade war seems imminent,” said JM Financial analysts Abhishek Kumar and Nandan Arekal, in a note dated 26 February.
“Recalcitrant inflation has pushed out fed rate cut hopes and plunged consumer confidence in the US. Such uncertainty is anathema to IT Services demand,” JM Financial analysts added.
“In our recent interactions with IT services players, we picked up sporadic instances of pause in transformation programs by large US banks. This, if spreads, could put Street’s (and ours) FY26 growth estimates at risk,” they said.
Banks are the biggest clients of homegrown IT firms. In the quarter ended December, banks, along with insurance firms and capital markets, accounted for 31.7% of business at TCS, 27.8% for Infosys, 20.3% for HCL Technologies, 34.1% for Wipro, and 16.1% for Tech Mahindra.
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National Association of Software and Service Companies (Nasscom), the country’s IT industry body, at its flagship event in Mumbai last month, said the country’s $283 billion IT industry is expected to cross $300 billion in the 12 months through March 2026. This translates to a growth of 6.2% on a yearly basis.
Analyst forecasts now raise questions on Nasscom’s estimate of 6% growth, which the IT sector needs to touch $300 billion in revenue by FY26.