Nifty IT slides deeper into bear market; Citi warns of poor growth for TCS, Wipro, Tech Mahindra

The Nifty IT index has been sliding, dropping 20 per cent from an all-time high last year, with a 16 per cent fall in 2025 alone. Downside global headwinds, poor US macroeconomic fundamentals, and high valuations have made the sector investors risk-off.

Citi has raised high valuations, with the index at 24 times one-year forward earnings, even as demand slows and margins are under pressure. The brokerage is sceptical of the sector, stating that margins will be difficult to improve even with the rupee at record lows.

Steady growth expected in FY26

Citi has forecasted only 4 per cent revenue growth for IT companies in FY26, consistent with the subdued growth of FY25. The brokerage cited stepping up the competition, pricing pressure, and lacklustre deal flow as the sector's major concerns.

In addition, AI adoption disruptions and GCC challenges can also limit pricing power. This does not enable companies to raise margins when they are facing currency tailwinds.

Valuation premium remains an issue

Even after the adjustment, Nifty IT is quoting 30 per cent premium to Nifty 50, much above its 10 year average of 12 per cent. Citi believes that this premium is not sustainable, especially considering the fact that India's overall economy will expand faster than the IT sector.

Stock ratings: TCS, Wipro, and Tech Mahindra under pressure

Among individual stocks, Citi has moved Mphasis to neutral from sell after a 30 per cent correction. It has, however, kept a sell rating on the big IT players like TCS, Wipro, Tech Mahindra, and LTIMindtree, given their high valuations and weak earnings visibility.

Citi's top picks from the largecap universe are HCLTech and Infosys, both of which have been assigned a neutral rating, as they present superior risk-reward opportunities over their group.

Nifty IT under selling pressure

On March 19, the Nifty IT index was the worst sectoral performer, continuing the trend of steady losses, with all 10 index stocks closing in the red. In the backdrop of global uncertainties and soft earnings outlook, the sector can still lag behind in the near term.