IT stocks head for worst year since 2008 as growth winter sets in

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26 Aug, 2025 12:21

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India’s information technology companies are set to register their worst performance in more than a decade as investors fear a long period of slowdown in growth going ahead.

The Nifty IT index has plummeted over 24 percent so far in 2022, putting it on course to mark its worst annual performance since 2008 when the index nosedived 55 percent amid a global financial crisis triggered by the collapse of investment bank Lehman Brothers in the US.

Individual counters like Wipro, Tech Mahindra, LTIMindtree, HCL Technologies, Infosys and Tata Consultancy Services of the Nifty IT index have fallen 12-45 percent so far in 2022.

The drawdown this year also marks an end to a five-year long streak of positive returns from information technology stock benchmark. In which time, the index gave annualized returns of 31 percent.

“Advanced economies are in the throes of an economic slowdown. IT Services, with 90% of exports to advanced economies, is clearly at risk,” said brokerage firm JM Financial Services in a note.

Fears of an impending recession in the US economy after the US Federal Reserve’s most aggressive interest rate tightening cycle in four decades has shrouded the outlook for Indian IT companies in darkness.

The steep inversion in the US 2 year-10-year Treasury bond yield, slowing growth indicators in the manufacturing economy and a rapidly deteriorating housing market point towards the US economy entering a recession in the second half of 2023, according to analysts.

Fear over a recession in the US drove foreign investors to pull out over $9 billion from the IT sector in 2022 so far, acounting for around 50 percent of the net foreign portfolio outflows in the year, as per data available of National Securitied Depository Limitied (NSDL).

IT stocks performance in 2022 so far

Eurozone a bigger risk

Where economists so far seem confident in anticipating a shallow recession in the US economy next year as compared to deeper ones such as those seen in 2008 and 2000, the outlook for the European economy is much starker.

“We reckon 2012 the Eurozone crisis offers the closest precedence to current demand situation,” JM Financial noted.

JM Financial believes demand in the Eurozone, the second-largest market for Indian IT companies, could remain sluggish for a protracted period as seen during the sovereign debt crisis in the EU in 2012.

Back then, IT services exports missed the guidance given by National Association of Software and Services Companies at the beginning of the year in three out of five years between 2012-16.

More Pain to Come

While valuations of IT companies have taken a beating from their peak in 2021, analysts at Credit Suisse Securities India last week warned that the correction has been unsatisfactory.

“IT valuations are stretched by every measure, and that we believe will drive correction if the US macro weakens,” Credit Suisse said in a note last week.

Echoing the warnings of JM Financial, Credit Suisse said that risks of sharp cuts to revenue expectations of the Street for major IT companies in India was high given weaker macroeconomic scenario in the US and moderating in cloud services-related growth.

Last week, reports in the US suggested that Amazon Web Services’ clients have started to look at ways to cut down on their spending on cloud-related services, negating arguments given by several IT companies earlier this year that cloud-led demand for Indian IT services could be resistant to general economic slowdown given how central digital services had become to growth of major global companies.

Despite the worst drawdown in 12 years, Indian IT stocks are trading at a 34 percent premium to their average valuations prior to the COVID-19 pandemic highlighting the extent to which investors had driven up such stocks during the hazy days of 2021’s tech rally.

With downgrades to 2023-24 revenues growth estimates of the Street not yet reflecting the anticipated pain in the US and Europe, JM Financial believes there is still scope for companies to disappointment on market’s expectations.

It’s a long winter ahead for Indian IT companies and their stocks.

(Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.​)