Indian IT Sector Faces Muted Growth Amid Geopolitical Tensions and AI Anxiety

The Indian Information Technology sector is poised for subdued growth this March quarter, as ongoing geopolitical tensions in West Asia and evolving apprehensions about generative AI create a challenging landscape. This forecast comes from Nuvama Institutional Equities, which anticipates US tariffs to further strain IT companies during the reporting period.

Despite these hurdles, the sector’s modest performance aligns with the brokerage’s expectations. While Tier-1 firms are predicted to experience earnings pressure, Tier-2 companies are likely to outshine them. According to Nuvama, growth within its coverage could span from -1.7% to 4.7% quarter-on-quarter.

Specifically, TCS is anticipated to post a 1.2% constant currency growth sequentially, with Wipro and Tech Mahindra following suit. Conversely, Infosys and HCL Technologies may register declinations due to seasonal influences. Meanwhile, Persistent, MPhasis, Coforge, and LTI Mindtree are set to lead the Tier-2 segment with substantial progress.

Furthermore, the rupee's sharp depreciation—down nearly 5% since the Gulf conflict's onset—might soften some financial repercussions for the Indian IT sector. Although trade disruptions loom, expected order flows could bolster IT firms amidst a volatile demand environment. Margin movements may reflect wage increases and restructuring costs offset by operational efficiencies and currency benefits.

Despite short-term volatility, Nuvama maintains a bullish outlook on the top ten IT service providers, citing strong medium- to long-term performance expectations following recent stock corrections.