Tech stocks under pressure: Nifty IT falls in 12 of last 13 trading sessions, sheds over 8% in Feb

Indian technology stocks appear to be caught in a perfect storm, as a series of negative developments—particularly weak economic data from the U.S., where these companies have significant revenue exposure—have rattled investor confidence, leading to a severe sell-off on Dalal Street.

Reports indicate that the U.S.’s series of tariff announcements could lead to price pressure and impact the economy. U.S. consumer sentiment remains weak, and there are fading hopes of multiple rate cuts by the U.S. Fed in 2025. Growing competition from Chinese AI companies has also been weighing on IT stocks.

The Nifty IT Index, which tracks the performance of 10 leading IT companies, tumbled another 1% in today’s intraday trade, February 25, touching a six-month low of 39,082 points.

The index has remained in the red in 12 of the last 13 trading sessions, losing 9% of its value. This decline has brought its February drop to 8.2%, marking the largest monthly fall since April 2022, when it plunged 13%.

All constituents of the index are now trading significantly lower than their respective peaks, with LTIMindtree down 22% from its one-year high. Meanwhile, other stocks, including Coforge, TCS, L&T Technology Services, and Persistent Systems, are trading with losses ranging between 18.5% and 24.26%.

Consumer confidence drops as inflation fears rise

The recent U.S. economic data released on Friday showed that consumers remain concerned about a potential rise in prices as tariffs take effect in March. The University of Michigan Consumer Sentiment Index fell to 64.7 in February, a decline of nearly 10%—a sharper drop than expected—as consumers expressed concerns about higher inflation due to potential new tariffs.

The five-year inflation outlook in the survey stood at 3.5%, the highest since 1995. Additionally, existing home sales in the U.S. fell more than expected last month to 4.08 million units. The U.S. services Purchasing Managers’ Index (PMI) also dropped into contraction territory for February, according to S&P Global.

Beyond inflation concerns, which experts believe could weigh on the U.S. economy, restrictions on immigration could further impact growth. Global brokerage firm Morgan Stanley predicted that immigration restrictions could slow net migration to about 1 million in 2025 and 500,000 in 2026, adding that this slowdown would likely reduce potential U.S. GDP growth to around 2.0% in 2025 and 1.0-1.5% in 2026.

Moreover, U.S. retail giant Walmart issued a weaker-than-expected forecast for 2025, further dampening the outlook for consumer spending and the broader economy. This has raised concerns that IT spending could be curtailed as businesses adopt a cautious approach, potentially impacting technology firms reliant on corporate investments in digital infrastructure and services.

Indian companies heavily rely on the U.S. market, with the region accounting for 60-70% of their revenue. This dependence explains why economic uncertainty in the U.S. could trigger a sharp sell-off in domestic IT stocks.

Last week, French IT consulting firm Capgemini reported a weaker-than-expected financial performance for 2024 and remains cautious about growth in 2025.

No multiple rate cuts by the US Fed in 2025

Inflation in the U.S. last month came in hotter than expected, scaling back U.S. Fed rate cut expectations to just one cut in 2025, down from the earlier forecast of three cuts. Morgan Stanley recently revised its outlook, now predicting a single 25 basis-point rate cut in 2025, citing uncertainty surrounding Trump’s tariff policy.

Federal Open Market Committee kept rates unchanged last month to assess how President Donald Trump’s policies will affect the economy. Policymakers are closely watching White House trade policy, with President Donald Trump pushing aggressive tariffs that also could boost prices and complicate the Fed’s desire to get to its goal.

PCE inflation data in focus

On the data front, the Personal Consumption Expenditures (PCE) Index—the Federal Reserve’s preferred inflation gauge—is expected to be released on Friday and could provide markets with insights into the timing of the central bank’s first rate cut this year.

Meanwhile, Nvidia’s quarterly results, set to be announced on Wednesday, will be crucial to investor sentiment in tech stocks, especially after the launch of low-cost AI models from China’s DeepSeek in January rattled technology-related stocks and raised concerns about U.S. dominance in the sector.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.