The Nifty IT, a gauge for the performance of technology stocks, fell nearly 3 per cent to 36,311, its lowest close since June 28.
Over the past month, the Nifty IT has dropped nearly 15 per cent amid an uncertain outlook for the US economy.
By comparison, the Nifty 50 is down 2.5 per cent during this period.
The recent developments have led brokerages to sound an alarm on the earnings outlook for the Indian IT sector, expecting companies to post lower revenue growth in the future.
According to a Morgan Stanley note, macro and other lead indicators point to a slower recovery in revenue growth in 2025-26 (FY26) compared to earlier expectations.
Further, with the new technology cycle ongoing, they now see a likelihood of a “transition phase” as spending is re-prioritised and growth rates moderate for a prolonged period.
“In this context, we lower our 2026-27 (FY27) revenue growth forecasts for the sector as a whole. Our earnings per share (EPS) estimates don’t change much as we factor in rupee depreciation versus the US dollar.
“However, we lower our target multiples for stocks as we see a risk of stocks reverting closer to their long-term average multiples in the absence of any material positive catalyst,” wrote analysts Gaurav Rateria, Sulabh Govila, and Sakshi Rana of Morgan Stanley in the note.
Among stocks, Morgan Stanley has downgraded Infosys to ‘equalweight’ and prefers Tech Mahindra over HCLTech.
It has also cut target prices for most front-line IT stocks across the board.
“Risks to growth have increased, and we lower our growth forecasts across the board by 100-200 basis points (bps) for FY26-27.
“Our bear case now expects growth rates to be in line with or lower than 2023-24/2024-25 (FY25) trends, assuming macro volatility leads to a freeze in discretionary spending and cost take-out projects face heightened competitive intensity,” the Morgan Stanley note said.
