IT stocks fall up to 4% after Infosys hikes entry-level salaries: Here's what analysts say

IT stocks fall up to 3% after Infosys hikes entry-level salaries: Here’s what analysts say

• Infosys raised entry-level salaries for freshers, up to Rs 21 lakh per annum
• Nifty IT index fell over 1 percent, extending losses for third straight session
• Analysts say salary hikes may pressure margins but boost AI talent retention

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IT stocks declined on December 26 after Infosys raised its entry-level salaries for freshers, with compensation packages of up to Rs 21 lakh per annum for specialised technology roles. Analysts have commented on whether this will have a major impact on the stocks, and what lies ahead.

The fall in the IT stocks pushed the Nifty IT index down more than 1 percent to end the session at 38,572.30, extending losses for the third consecutive session.

What lies ahead for IT stocks:

Indian IT stocks have been navigating a challenging environment as sector dynamics evolve, said Kalp Jain, Research Analyst at INVasset PMS. He noted that the recent announcement of Infosys hiking entry-level salaries underscores the intensifying competition for digital talent.

“This move reflects broader attempts by firms to attract highly skilled professionals in areas such as artificial intelligence, cloud and advanced engineering, where demand continues to grow,” he added.

However, the analyst added that the overall salary growth in the IT sector appears to be moderating, with average increments slated to ease slightly compared with recent years as companies balance cost pressures and margin discipline with talent retention. But wages and benefits have continued to rise in targeted areas, contributing to higher operating costs even as revenue growth slows in some segments.

“For IT stocks, the path forward may hinge on how effectively companies manage talent costs while maintaining competitive pricing, expanding service offerings and securing robust deal pipelines. Because wage structures remain a key cost component, investor focus will be on whether revenue and margin expansion can offset any near-term pressure from higher payroll expenses,” he concluded.

Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara, however felt that hikes in salaries will not meaningfully alter sector valuations anytime soon. He said that Indian IT stocks are toggling between a volatile mix of earnings momentum, global demand, and talent costs.

“Investors continue to pay more attention to deal pipelines, margins, demand from key markets such as the U.S., and broader macro cues. IT stocks are likely to respond more to signals related to global demand and earnings outlook than to compensation changes,” he added.

Amid an expected acceleration in AI-led demand globally, Infosys is proactively positioning its workforce to be AI-ready, said Dhanshree Jadhav, Analyst – Technology Services, Choice Institutional Equities. She added that the salary hikes are aimed at curbing attrition and enhancing Infosys’ ability to attract high-quality freshers, especially at a time when entry-level salaries across Indian IT companies have remained largely stagnant, reducing their competitiveness versus start-ups.

"We believe the global IT industry is at an inflection point where strong sustained growth will increasingly be driven by upfront investments in talent and AI-led infrastructure to stay ahead of the curve," she said.

Infosys’s decision to raise entry-level salaries, especially for AI roles, shows how the IT industry is evolving, said Ajit Mishra – SVP, Research, Religare Broking Ltd. In the short term, higher wages put pressure on margins and make investors cautious, he added.

"It also sets a new benchmark, pushing peers like TCS and HCLTech to offer similar pay, which could lift costs across the sector and keep IT stocks under pressure for a while. However, the long-term picture is more positive. The industry is moving away from mass hiring toward specialised skills. Companies that can effectively monetise AI, cloud, and digital services should be able to justify higher salaries and deliver more stable, higher-quality growth over time," the analyst said.

The stocks had earlier declined this week after the Donald Trump-led US administration said it was replacing its longstanding lottery system for H-1B work visas with a new approach that prioritises skilled, higher-paid foreign workers.

A press release announcing the new rule says it is “in line with other key changes the administration has made, such as the Presidential Proclamation that requires employers to pay an additional $100,000 per visa as a condition of eligibility.”

Top IT losers today:

Coforge shares were the top loser on the index, falling nearly 4 percent after Moneycontrol reported that the IT services firm is in advanced discussions to acquire a global digital engineering company in a deal valued at over $1 billion, potentially marking one of the largest transactions in the sector.

LTIMindtree shares fell over 2 percent, while Mphasis, Tech Mahindra and Tata Consultancy Services (TCS) shares fell more than 1 percent each. Persistent Systems, HCL Technologies and Wipro shares fell around 1 percent each, while Infosys shares closed  in the red with marginal losses.

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