Nifty IT Emerges as Worst Performing Sector in H1 2025, Down Over 10%; All Constituents in the Red

Sectoral Slide Amid Global Tech Weakness

As the first half of 2025 wraps up, India’s benchmark IT index – the Nifty IT – has emerged as the worst-performing sector on the National Stock Exchange, logging a decline of over 10% year-to-date. This sectoral slump stands in stark contrast to the broader Nifty 50, which posted modest gains during the same period.

All ten constituents of the Nifty IT index—comprising major names such as Infosys, TCS, Wipro, HCLTech, Tech Mahindra, and LTIMindtree—have ended H1 2025 in the red. The collective erosion of investor wealth reflects persistent macroeconomic challenges, subdued client demand from key overseas markets, and margin compression due to elevated wage costs.

Global Headwinds Weigh on Earnings

The underperformance of IT stocks in the first half of 2025 can largely be attributed to global economic sluggishness, especially in key markets like the US and Europe. Many Indian IT firms derive more than 70% of their revenue from these geographies.

According to Siddharth Khanna, Senior Research Analyst at ICICI Direct, "The slowdown in discretionary IT spending by global clients, particularly in BFSI and retail verticals, has put pressure on topline growth. Deal wins are steady but skewed towards cost optimization rather than digital transformation projects, which carry higher margins."

Quarterly results across the board have seen muted revenue growth, with companies maintaining a cautious tone in their forward guidance. Tier-1 IT firms like Infosys and TCS reported flat to low single-digit constant currency revenue growth, with weak hiring trends indicating tepid business confidence.

Attrition Stabilizes but Margin Pressures Remain

One silver lining has been the cooling off of attrition rates, which had soared during the post-COVID IT boom. However, the benefit of lower hiring costs has not been sufficient to offset pressure from pricing challenges and reduced utilization rates.

Anusha Shetty, IT sector analyst at Kotak Institutional Equities, said, “While employee cost inflation has normalized, operating margins remain under pressure due to a lack of pricing power and delays in client ramp-ups. The sector is clearly in a consolidation phase.”

According to industry estimates, average EBIT margins for top IT players declined by 100–150 basis points in H1 2025 compared to the same period last year.

Stock Performance: Broad-Based Decline

Here's a snapshot of YTD performance of some major Nifty IT constituents as of June 26, 2025:

• Wipro: -15.4%

• Tech Mahindra: -13.2%

• Infosys: -11.7%

• HCLTech: -10.8%

• TCS: -9.9%

• LTIMindtree: -14.1%

• Coforge: -12.3%

• Mphasis: -10.6%

• L&T Technology Services: -8.4%

• Persistent Systems: -9.7%

The broad-based nature of the correction underlines systemic issues rather than company-specific setbacks.

Rupee Gains, Valuation Premiums Add Pressure

Adding to the woes, a relatively stronger Indian rupee in early 2025 has weighed on export-heavy IT firms. Furthermore, elevated valuation multiples—built during the COVID-era digitization wave—are undergoing a reset, prompting FII outflows from the sector.

Foreign portfolio investors (FPIs), who were heavy buyers of Indian IT stocks in 2021 and 2022, have trimmed their exposure, pivoting towards domestic cyclical sectors like capital goods, banking, and auto.

Investor Outlook: Defensive Play or Value Trap?

Despite near-term headwinds, some analysts see value emerging in the sector, particularly for long-term investors. The correction in stock prices has made valuations more attractive.

Pranav Desai, Head of Equities at Axis Securities, commented, “While the IT sector faces cyclical pain, the long-term fundamentals remain intact. Companies with strong balance sheets, robust client relationships, and diversification beyond North America will recover faster. For investors with a 2–3 year view, this is an accumulation phase.”

However, others urge caution, noting that earnings downgrades may not be fully priced in yet.

The Nifty IT index currently trades at a forward PE of 22x, down from its peak of over 30x in 2021, but still higher than its long-term average of around 18x.

Looking Ahead: Recovery Hinges on Global Revival

The performance of Indian IT stocks in the second half of 2025 will largely depend on macroeconomic conditions in the US and Europe, and a recovery in enterprise tech spending. Emerging technologies like AI, cloud migration, and cybersecurity may offer pockets of growth, but broad-based revival remains elusive for now.

The sector may continue to underperform unless there is a clear turnaround in deal flow and profitability metrics, and investors are advised to adopt a bottom-up stock picking approach rather than a blanket sector bet.

The Nifty IT sector’s dismal show in H1 2025 reflects broader macro challenges, evolving client expectations, and operational headwinds. While near-term pain persists, market participants are divided on whether this is a consolidation phase or a prolonged downturn. For now, caution and selective positioning seem to be the prudent path forward for investors eyeing India’s once-darling tech space.