Tech Mahindra, Infosys Lead IT Selloff Amid Rising US Fiscal Deficit Concerns

Last Updated:May 22, 2025, 13:38 IST

So far in 2025, Nifty IT stocks have declined up to 34%, with names like Oracle, Wipro, Infosys, Coforge, TCS; What should Investors Do?

IT Stocks Tumble: Shares of Indian IT companies declined sharply on May 22, mirroring the sell-off in US tech stocks, as investors grew increasingly concerned about the possibility of a widening US federal deficit. The Nifty IT index slipped nearly 1.4% in early trade, making it one of the worst-performing sectors of the day.

The pressure stems from renewed worries around US fiscal health, with Republican lawmakers working on a new budget proposal that includes tax cuts. However, the potential for this proposal to significantly expand the already large federal deficit has rattled markets. The mood soured further after Moody’s downgraded US sovereign debt last week, citing mounting debt levels and fiscal imbalances.

These developments have pushed long-term US Treasury yields higher, sparking a sell-off across global equity markets. US indices tumbled overnight, with losses spilling into Asia as Japan’s Nikkei 225, South Korea’s Kospi and Kosdaq, and Hong Kong’s Hang Seng each fell more than 1% in morning trade.

Back home, benchmark indices opened in the red, with IT stocks bearing the brunt of the fall. Given their heavy reliance on US business, Indian IT companies are seen as vulnerable to a prolonged period of US fiscal instability.

Tech Mahindra led the losses, plunging over 2% to Rs 1,564.70. Persistent Systems, HCL Tech, and Mphasis also dropped more than 2% each. Market heavyweights TCS and Infosys slipped around 1.4%, while Wipro declined over 1%. LTI Mindtree, and Coforge traded with marginal losses.

The IT sector has faced increased volatility this year, initially rallying but reversing gains after the Moody’s downgrade. Analysts have flagged high valuations and persistent earnings downgrades as major concerns heading into FY26.

“This is not a broad-based ‘buy-the-sector’ moment,” said Sonam Srivastava, founder and fund manager at Wright Research. “While the sector has underperformed, valuations are not uniformly cheap yet, and earnings downgrades are still trickling in. Patience will be key.”

So far in 2025, individual Nifty IT stocks have declined between 7.6% and 34%, with names like Oracle Financial Services, Wipro, Infosys, Coforge, TCS, and HCL Tech dragging the index down by 14%. In contrast, the Nifty50 has gained 4.4% in the same period.

From a valuation standpoint, the Nifty IT index is currently trading at a P/E of 29.1x, close to its five-year average of 29.3x. Some stocks, however, are trading at elevated multiples—Coforge at 67.5x (vs. 44.3x average), HCL Tech at 25.8x (vs. 22.7x), and Tech Mahindra at 36.7x (vs. 28.5x), according to Bloomberg data.

Should You Buy IT Stocks Now?

While near-term headwinds persist, analysts remain structurally positive on the Indian IT sector due to the US’ strategic push to diversify away from China and deepen ties with countries like India. This, combined with growing global demand for digital infrastructure, AI, and cybersecurity, offers a medium-term growth opportunity.

Sonam Srivastava advises a selective investment approach: “Investors should focus on companies with annuity-heavy revenue models, strong AI/cloud capabilities, and exposure to cost-takeout deals. Large-cap players like Infosys and TCS with resilient pipelines and cost optimisation potential offer relative safety as we head into FY26.”

Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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