IT Stock Declines Keep Indian Benchmarks Muted
Synopsis
Indian benchmarks traded flat, with declines in IT stocks offset by positive updates from other sectors. The Nifty IT index fell 2%, led by losses in Infosys, HCL Tech and Tech Mahindra, as concerns over potential US tariffs weighed on companies with heavy exposure to the American market. Citi remains cautious on the sector, expecting a slow recovery and warning that current valuations are unattractive. Elsewhere, realty stocks advanced, and small-caps edged higher. Foreign institutional investors were net buyers, purchasing shares worth Rs 289 crore. Banking stocks stayed buoyant on the back of strong credit growth. Overall, markets remain volatile as they move into a consolidation phase at the start of 2026.
Indian equity markets opened slightly weaker and traded in a narrow range, pressured by selling in IT stocks despite positive trading updates from several large-cap companies. The Nifty IT index fell over 2 per cent, with Infosys, HCL Technologies and Tech Mahindra leading losses amid uncertainty around US trade policy. Broader markets were mixed, as gains in realty stocks and some mid-cap names offset weakness elsewhere. The Sensex closed down 33.88 points at 85,728, while the Nifty ended marginally higher at 26,335.
IT Sector Weighs Heavily
The Nifty IT index fell over 2 per cent, continuing its recent decline as US tariff threats weighed on investor confidence. Infosys dropped 2.37 per cent after mixed Q3 updates fell short of market expectations, while HCL Technologies declined 3.3 per cent following a CLSA downgrade that cited no clear signs of a turnaround. Tech Mahindra slid 2 per cent after reporting weaker-than-expected revenue. Citi Research warned of a slow and uneven recovery for the IT sector, describing current valuations as unattractive. Additional pressure came from tariff rhetoric linked to India’s purchases of Russian oil. Analysts estimate AI-driven disruption could affect 8-10 per cent of the sector over the next three to four years, with recent earnings continuing to disappoint. Nearly 60 per cent of industry revenue comes from US clients, heightening exposure to policy uncertainty.
Mixed Gains Elsewhere
The Sensex ended marginally lower at 85,728, while the Nifty closed slightly higher at 26,335. Realty stocks led gains, with the sectoral index rising 1.5 per cent on strong pre-sales. Bharat Electronics advanced 3.25 per cent, while mid-cap Ola Electric surged 6.53 per cent. Broader markets were mixed, as small-cap stocks gained 0.2 per cent even as mid-caps declined 0.3 per cent. Foreign institutional investors were net buyers worth Rs 289.80 crore on Friday, lending support to sentiment. Banking stocks showed resilience on signs of healthy credit growth, while consumer discretionary and FMCG shares also contributed to gains. Market volatility has persisted into early 2026, with sector rotation remaining evident.
Analyst Outlook Mixed
Caution continues to surround the IT sector as brokerages flag multiple risks heading into 2026. Jefferies has warned that slowing demand and elevated valuations could trigger earnings downgrades, while CLSA has cut its ratings on HCL Technologies and Tech Mahindra, pointing to an uncertain turnaround. Citi Research has also struck a cautious note, describing the recovery as slow and valuations as unappealing. Even so, market momentum remains intact, with benchmark indices trading near record levels. Banking stocks are expected to deliver solid third-quarter results, offering some support as markets move into a consolidation phase. With consumer demand showing early signs of recovery, some analysts believe double-digit returns are still achievable in 2026, though geopolitical tensions and tariff risks remain key variables.
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