India’s information technology stocks witnessed sharp selling pressure on Tuesday, with the Nifty IT index plunging 3.7 per cent to its lowest level since May 2023 amid mounting concerns over slowing demand, weak earnings guidance and uncertainty surrounding the US interest rate outlook.

The index extended its losses for a second straight session and emerged as the worst-performing sectoral index on the NSE. Over the last two trading sessions, the Nifty IT index has declined nearly 4.5 per cent, with all 10 of its constituents trading in the red.

Among the biggest losers was Persistent Systems, which fell as much as 5 per cent during intraday trade. Tata Consultancy Services dropped up to 4.27 per cent, while LTIMindtree slipped nearly 4 per cent. Shares of Infosys, Tech Mahindra, HCL Technologies, Wipro and Coforge also declined between 2 per cent and 4 per cent.

Weak Earnings Outlook Dampens Sentiment

Market sentiment remained fragile after global brokerage HSBC highlighted that fourth-quarter earnings and FY27 outlooks from India’s top-tier IT firms largely fell short of expectations. Analysts noted that despite robust spending on artificial intelligence globally, traditional IT services spending appears to be slowing as businesses prioritise AI investments.

The concerns intensified following OpenAI’s announcement that it plans to launch a new company backed by more than USD 4 billion to help organisations build and deploy AI systems at scale. Investors fear that the accelerating AI race could further disrupt legacy outsourcing and software services models that Indian IT firms have traditionally relied upon.

India’s IT industry, valued at nearly USD 315 billion or around Rs 26.3 lakh crore, derives approximately 57 per cent of its revenue from the United States. This heavy dependence on overseas markets has made Indian IT firms particularly vulnerable to changes in the US economic environment.

US Inflation Data In Focus

Investor caution also increased ahead of the release of the US consumer price index data later in the day, which could provide crucial signals on the future path of interest rates by the US Federal Reserve.

Higher US interest rates typically weigh on technology stocks as they increase recessionary risks and prompt clients to cut discretionary spending on technology and digital transformation projects. Analysts said expectations of fewer rate cuts in 2026 have further weakened investor confidence in the sector.

Major brokerages including Goldman Sachs and BofA Global Research have recently revised their expectations for Federal Reserve rate cuts, citing persistent inflationary pressures, elevated energy prices and resilience in the US labour market.

According to Reuters, Ilya Spivak, head of global macro at Tastylive, said markets are increasingly worried that central banks could adopt a more hawkish stance if inflation remains elevated. He noted that investors are closely watching the CPI data for signs of stronger-than-expected inflation momentum.

Oil Prices Add To Market Anxiety

Global crude oil prices also climbed nearly 1 per cent on Tuesday, adding to broader inflation concerns across markets. Analysts believe sustained higher oil prices could further complicate the inflation outlook and reduce the likelihood of aggressive rate cuts by central banks.

The latest selloff comes months after global IT and technology stocks had faced pressure following Anthropic’s launch of advanced AI tools earlier this year, which had sparked fears of disruption across data, outsourcing and professional services industries.

With weak earnings visibility, slowing discretionary spending and growing AI-led disruption concerns, analysts expect volatility in Indian IT stocks to remain elevated in the near term.

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