The Nifty IT index rose nearly 2 per cent on April 11, offering a brief breather to investors after a brutal month for tech stocks. But the bounce may be short-lived. The sector continues to reel under pressure from three major headwinds: global tariff turmoil, a shift in US government tech policy, and disappointing Q4 earnings.
Trump’s tariff move sparks fresh fear over US tech budgets
US President Donald Trump’s April 2 announcement of a sweeping “reciprocal tariff” regime, with rates going up to 125 per cent on Chinese imports and a 10 per cent base rate on others, has rattled global markets. Though a partial 90-day pause was later announced, the lack of clarity has kept risk appetite low.
For Indian IT, this is a red flag. The US remains its largest revenue contributor, and any inflationary shock or budget squeeze could directly hit discretionary tech spending. Analysts at Bernstein warn that rising inflation, coupled with trade tensions, could delay or shrink tech outsourcing deals.
Pentagon scraps $5.1 bn in IT contracts
In another setback, the US Department of Defense recently cancelled IT contracts worth $5.1 billion with global consultants like Accenture and Deloitte. Termed “non-essential” by US Defense Secretary Pete Hegseth, these contracts were axed as part of a move to cut external spend and increase insourcing.
This shift could have ripple effects for Indian tech firms that rely heavily on large-scale US government and enterprise contracts. The writing on the wall suggests a more inward-focused US tech procurement policy.
Weak Q4 show and valuation risks keeping sector on edge
Indian IT majors aren’t providing much comfort either. TCS posted a 2 per cent YoY drop in Q4 FY25 net profit and failed to meet Street expectations. Infosys is expected to guide for a meagre 1–3 per cent growth in FY26. Elara Securities and Kotak Institutional Equities have flagged rising risks to margins and earnings, warning of further downside in select tech stocks.
The Nifty IT index has fallen 24 per cent year-to-date in 2025, and while today’s gains may offer some temporary relief, analysts remain cautious. Until clarity emerges on tariffs and earnings improve, tech stocks could remain stuck in a tough spot.
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