The Nifty 50 index has achieved a new all-time high after approximately 14 months. In contrast, the Nifty IT index continues to underperform, currently trading more than 20% below its peak of 46,088 reached in December of the previous year, and has decreased 13.36% on a year-to-date (YTD) basis, while the Nifty 50 has increased by 10.81%.

Nifty IT underperformance is associated with sluggish growth in revenue and profits in the sector, coupled with several elements such as the stringent tariffs enacted by US President Donald Trump on imports from India and other countries. This situation has resulted in a decrease in the value of Indian IT stocks, driven by worries over diminished discretionary spending in the US stemming from these tariffs.

Consequently, the clarity of earnings for the sector has worsened, leading to ongoing valuation compression and positioning IT as one of the poorest performers in 2025.

“Nifty IT’s YTD underperformance relative to the Nifty 50 reflects a combination of cyclical and structural pressures. The sector has been disproportionately impacted by the global tariff war, with Indian IT companies deriving nearly ~60–70% of revenues from the US and Europe, the spillover from recessionary fears, elevated interest rates, and tightening corporate tech budgets has been significant.

This has led to prolonged decision-making cycles, deferral of discretionary digital-transformation projects, and muted slower deal pipelines,” said Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities.

Furthermore, Trump raised fees for H-1B visas. The ongoing conflict between President Trump and Federal Reserve Chairman Jerome Powell has also exerted pressure on the stock prices of companies that generate a significant portion of their income from the US economy.

IT Sector – Q2 Earnings

As per Motilal Oswal Financial Services, the earnings for 2QFY26 provided some relief, given that expectations had already been lowered and the quarter typically shows seasonal strength.

The brokerage pointed out that among top-tier firms, HCL Technologies distinguished itself by increasing its services revenue forecast due to robust deal wins, making it the fastest-growing in the top four. LTIMindtree exceeded expectations in both revenue and margins, leading to a 4-5% revision in our FY26/FY27 projections. Conversely, Infosys retained its maximum full-year guidance, suggesting that recovery in growth will be gradual, while TCS’s remarks indicate a cautious demand outlook for the second half.

“We remain constructive on the sector, as near-term earnings upside appears limited. Valuations are not the problem anymore, but questions are being asked of the structural demand outlook. We believe sustained rerating will likely require evidence of GenAI-led spending translating into meaningful revenue momentum, which, as of now, remains some distance away.

We continue to prioritize a bottom-up play in IT: HCL Technologies and Tech Mahindra in large-cap and Coforge in mid-tier categories,” said Motilal Oswal Financial Services in its report.

Key catalysts that could trigger a sustained re-rating of IT sector

Recent macro trends and positive economic signals from Western markets suggest a possible recovery for the IT sector. Reduced trade tensions between the US and India, along with gradual policy alignment, are expected to foster a rebound in global tech expenditures, especially as confidence among enterprises begins to stabilize.

Prashanth Tapse explained that the recovery, however, is expected to be uneven large-cap IT firms with strong client relationships and diversified digital portfolios are positioned to rebound first, while mid- and small-cap names may remain range-bound in the near term due to weaker deal visibility.

“Key catalysts that could trigger a sustained re-rating include the formalisation of US–India deal agreements and a more accommodative stance from the US Federal Reserve, particularly if rate cuts exceed market expectations and lift global risk sentiment. Overall near-term outlook remain neutral to positive while long term outlook remain optimistic,” added Tapse.

Technical Views

On Monday’s session, Nifty IT was trading in green, the index opened at 37,476.60 levels, touched intraday high of 37,659.75 level, and an intraday low of ₹37,413 level.

Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, said that the recent price action indicates a potential turnaround. After forming a base near the October lows of 33,500, the index has shown clear signs of bottoming out. Major constituents have developed a rounding bottom structure, and prices have now crossed above key moving averages. Notably, a bullish crossover between the 20-SMA and 200-SMA is visible on the Nifty IT chart, reinforcing the improving sentiment.

“Given these developments, we anticipate a catch-up rally in the IT space in the coming weeks, and believe dips should be viewed as buying opportunities. Within this sector, we remain positive on Tech Mahindra, HCL Technologies, and Tata Consultancy Services (TCS),” said Bhosale.

Further, Drumil Vithlani, Technical Research Analyst at Bonanza added that the index has now formed a rounded base with price sustaining above the 20/50 EMAs and momentum improving.

According to Vithlani, a breakout above 38,000 could trigger a catch-up rally toward 39,500–40,000.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.