India’s $280-billion IT industry is staring at one of its most challenging years in recent memory, as the fallout from US President Donald Trump’s tariff war ripples across global markets. Despite a broader stock market recovery in April, the Nifty IT index has plunged 9.5%, even as the benchmark Nifty 50 gained 1.4% over the same period. The sharp underperformance signals deep-seated investor concerns about the sector’s near-term outlook.
The IT industry’s weight in the Nifty 50 has now dropped to 10.2%—its lowest level in 17 years. This reflects more than just market sentiment; it reveals growing anxieties over revenue stagnation, delayed deal renewals, and shrinking hiring plans. The sector’s market capitalisation currently stands at Rs 25.5 trillion, a far cry from the Nifty 50’s overall Rs 189.4 trillion. With the index down 23% since the start of 2025, this marks the worst start to a year for Indian IT stocks in over two decades.
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IT industry and the tariff shock
While Trump’s new 27% tariff on Indian goods does not directly target IT services, the ripple effects are proving to be significant. Tighter client budgets in key sectors such as manufacturing, retail, logistics, and healthcare—directly impacted by these tariffs—are already weighing on outsourcing demand. These industries form the backbone of the Indian IT sector’s client base.
The broader concern is inflation in the US and a potential slowdown in its economy, both of which could curtail discretionary tech spending. If the largest global consumer of IT services—the US banking, financial services and insurance (BFSI) sector—also starts tightening its purse strings, the impact on Indian IT revenues could be severe.
Compounding the pressure are Trump administration signals pointing to digital protectionism. A February 2025 memo hinted at potential curbs on digital services and cross-border data flows. Coupled with stricter H-1B visa norms, Indian IT majors face rising costs and operational hurdles in serving their largest market, which accounts for 57% of the industry’s $193 billion in revenue in FY24.
Earnings take a hit
Quarterly results from industry bellwethers reflect the downturn. Tata Consultancy Services (TCS) reported a 1.7% dip in net profit for Q4 FY25 to Rs 122.24 billion, while Infosys posted a sharper 11.7% drop to Rs 70.33 billion. Both firms gave subdued guidance, anticipating near-flat revenue growth for FY26. This is in stark contrast to the 24% annual growth seen in dollar terms just a few years ago.
Brokerages are slashing expectations. Nomura recently downgraded FY26 revenue forecasts for top-tier IT firms by 230–350 basis points. Infosys is now expected to post a muted 4.6% growth, followed by HCLTech at 4.3% and TCS at 3.9%. CRISIL has projected sector-wide revenue growth of just 6–8% in FY26, the third consecutive year of mid-single-digit expansion. HDFC Securities, in an April 4 note, warned that guidance for the next fiscal would likely remain “unexciting.”
Deal renewals under pressure
Adding to the uncertainty is a looming $20 billion worth of deal renewals in 2025. Global macroeconomic concerns and ongoing tariff tensions have already cast a shadow over these negotiations. Companies like Nasdaq-listed Cognizant, along with Infosys, HCLTech, and TCS, are bracing for tougher discussions with clients.
Industry experts say small and mid-sized discretionary deals—especially in verticals like logistics, healthcare, and consumer goods—are likely to be shelved. The dominant narrative is shifting to “cost-plus-AI,” with clients increasingly demanding automation and artificial intelligence-driven efficiencies over traditional IT services.
The hiring slowdown
Hiring trends are another indicator of the shifting sands. After years of aggressive campus recruitment and lateral hiring, the sector is now in consolidation mode. TCS, Infosys, and Wipro together added just 1,438 employees between Q3 and Q4 FY25. That marks a dramatic turnaround from earlier hiring waves, with overall demand for new talent dropping by nearly 20%.
The new focus is on building AI capabilities. Companies are selectively hiring for GenAI and cloud architecture roles while deprioritising traditional coding and support functions. Industry-wide hiring is expected to remain sluggish as firms seek to optimise costs and wait out global headwinds.
A glimmer of opportunity
Yet, amid the gloom, there may be a silver lining. Trump’s aggressive tariff stance toward China is prompting global manufacturers to explore alternative production bases—India included. Electronics and semiconductor manufacturing, already a focus area for the Indian government’s industrial policy, may receive a boost. That, in turn, could stimulate domestic IT demand through backend support services, ERP systems, and industrial automation solutions.
Still, any potential upside from this shift will take time to materialise and will not offset the near-term pain the sector is likely to endure. As global deal cycles slow, margins compress, and policy risks mount, Indian IT firms must prepare for a year of belt-tightening and strategic recalibration.
FY26 may well be the most turbulent year the Indian IT sector has faced in recent memory. The combination of external shocks—from tariffs to tech protectionism—and internal pressures—earnings downgrades and hiring freezes—will test the resilience of even the strongest players.
But the sector has reinvented itself before and may do so again. Those that can pivot to AI-led transformation deals, deepen vertical expertise, and localise delivery models may not only survive but also emerge stronger. For now, though, the storm clouds are unmistakable. India’s tech titans will need every bit of ingenuity, agility, and resilience to ride them out.