Nifty IT index enters bear market—What investors need to know
What's the story
The Nifty IT index entered bear market territory on Wednesday, after a steep 4% fall to hit a 8-month low of 35,988 points.
The fall comes largely on the back of downgrades and target price cuts for India's top software services exporters.
Major contributors to the fall were Wipro and Infosys, both of which fell over 5% in today's session.
The index has now fallen by nearly 21%, or 10,000 points from its peak value.
Market impact
Several companies witness a dip in their stock prices
Other companies like HCL Tech, LTIMindtree, Persistent, Mphasis, and LTTS also fell over 3% in today's session.
Tata Consultancy Services (TCS) saw the least fall at about 2%.
The decline comes after Morgan Stanley downgraded India's IT sector, including cuts to ratings and target prices amid global uncertainty and impact of Trump's tariffs.
Sector analysis
Morgan Stanley's downgrade and its implications
Morgan Stanley downgraded Infosys to 'equal-weight,' cutting its target price to ₹1,740 from ₹2,150.
Coforge and TCS were both rated 'overweight' but their target prices were cut to ₹9,400 from ₹11,500 and ₹3,950 from ₹4,660, respectively.
HCL Tech and Tech Mahindra maintained their 'equal-weight' rating with revised target prices of ₹1,600 and ₹1,550, respectively.
Market conditions
Factors contributing to the downturn in IT stocks
Morgan Stanley cited rapid changes in the macro environment and technological landscape as key factors contributing to downside risks for revenue growth and valuation multiples in India's IT services sector.
The firm also noted that valuation multiples for certain stocks may become increasingly polarized.
This comes amid fears of a potential recession in the US and concerns over the impact of AI on IT companies.
Future outlook
Kotak Institutional Equities weighs in on IT sector growth
Kotak Institutional Equities has predicted that FY26 growth across most IT companies is likely to be modestly better than FY25, but still below normalized levels.
This is due to a slower-than-expected recovery in discretionary spending, uneven recovery in certain sectors (especially hi-tech), and potential disruption from AI adoption by enterprises.
"We believe GenAI will benefit challengers while incumbents face a challenge to adapt," Kotak said.