The selling momentum accelerated dramatically last month, with FIIs offloading nearly Rs 20,000 crore worth of IT stocks as disappointing Q1 earnings and widespread layoff announcements shattered any hopes of a near-term recovery.
IT bellwether Tata Consultancy Services (TCS), which announced layoffs of 12,000 employees, representing 2% of its workforce, has been the worst hit in the rout. The stock’s performance in 2025 marks its worst phase since the 2008 global financial crisis.
Peers Infosys has plummeted 29% from its peak, HCL Technologies has shed 27%, while Wipro and LTIMindtree have both declined 26%. Midcap IT stocks are no better, with OFSS down 36%, Persistent Systems falling 25%, and Coforge retreating 20% from their 52-week highs.
“Revenue performance was weak in the quarter, with four of the five large IT companies reporting revenue decline quarter-on-quarter and three of the five on a year-on-year basis,” analysts at Kotak Securities pointed out, highlighting the broad-based nature of the sector’s troubles.
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Companies have cited various factors for the weak demand environment, including tariff impacts and subdued discretionary spending across multiple verticals—painting a picture of global clients tightening their technology budgets.”Weak demand has led to underwhelming results across the IT sector. This softness has manifested in multiple ways—margin pressure, increased reliance on balance sheets to drive growth, and heightened aggression in cost take-out deals,” said Kawaljeet Saluja of Kotak Equities.Despite companies implementing wage deferrals and aggressive cost optimization measures, margins have remained under relentless pressure. EBIT margins declined year-on-year for the top three players, with profitability pressures visible across the board.
“While companies have managed to protect margins during weak demand phases through efficiency measures, wage deferrals, and cost controls, the levers appear largely exhausted after nearly three years of subdued demand,” Saluja noted, warning that large cost take-out deals are inherently margin-dilutive.
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Layoffs fuel AI fears
The sector’s woes deepened with news of employee retrenchments adding fuel to the fire. Beyond TCS’s 12,000 job cuts, HCL Technologies announced it is adjusting talent deployment outside India, sparking debates about generative AI beginning to impact the workforce.
However, BNP Paribas‘s Kumar Rakesh sees these retrenchments differently: “We see these retrenchments as a sign of demand supply mismatch and margin pressure. Notably, this is happening at a time when, for most IT Services firms, attrition is rising, utilisation rates are close to their peak, and hiring, especially of freshers, continues.”
Mixed earnings scorecard
Out of 15 Indian IT services companies analyzed by BNP Paribas, 53% beat consensus revenue growth estimates, an improvement from just 20% last quarter. However, 60% missed on margin expectations, with some flagging incremental margin pressure ahead.
“While no company’s results were a clear positive surprise, TCS’ results were the weakest in this earnings season,” said Kumar Rakesh of BNP Paribas.
The brutal correction has at least made valuations more palatable. Following the sell-off, valuations are now undemanding with free cash flow yields of over 4.5% and payout yields of approximately 4%.
This has caught the attention of some analysts. Global brokerage Jefferies upgraded the IT sector to neutral from underweight earlier this week, citing attractive valuations relative to the Nifty.
“While we remain concerned on long-term stock performance for IT companies given single-digit EPS growth outlook, we believe conditions are ripe for a near-term tactical bounce,” Jefferies said while adding Infosys to its model portfolio.
Should you buy the dip?
Some market veterans are beginning to see opportunity in the wreckage. Jimeet Modi of Samco Group expects decent revenue growth ahead, arguing that India’s IT firms benefit from lower operating costs and a large, skilled workforce.
“These structural advantages should support a gradual recovery in H2 2025, making current levels a selective entry point for long-term investors in top-quality IT names,” he said.
However, analysts caution that a major re-rating for the sector hinges on the emergence of a new technology cycle and meaningful earnings upgrades.
Also Read | Jefferies upgrades Street’s most hated stocks, says Q1 earnings not too bad
Brokerage Picks
Among the carnage, brokerages are making selective bets:
- Kotak prefers Infosys, Tech Mahindra, Coforge, and Hexaware
- Motilal Oswal continues to prioritize HCL Technologies and Tech Mahindra in large-cap, and Coforge in mid-tier categories
- Jefferies’ India model portfolio includes Infosys, Coforge and Sagility India
- BNP Paribas maintains buy calls on HCL Technologies, Infosys, Persistent Systems and TCS
As the sector grapples with one of its deepest crises in the last few years, the question remains whether this bloodbath represents a capitulation bottom or merely the beginning of a longer winter for India’s once-unstoppable technology sector.
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