IT stocks reverse gains with profit-booking; weak April deal momentum, US cues weigh

IT stocks take a breather after sharp run-up; Profit-booking, rupee appreciation, and weaker deal momentum weigh

IT stocks faced selling pressure on Tuesday, with the Nifty IT index falling over 2.4 percent, snapping a recent rally that had lifted the sector nearly 20 percent from April lows. The sharp reversal, coming just a day after IT led the market higher, points to profit-booking and a pause when it comes to investor enthusiasm as the market re-evaluates near-term growth visibility amid evolving global and domestic cues.

Rajesh Palviya, technical and derivatives head at Axis Securities, attributed the decline to a healthy round of profit-taking rather than any structural weakness. “Today’s decline in IT is largely a case of profit-booking following Monday’s rally. There’s no significant supply pressure yet, but the sector is entering a natural phase of consolidation after a strong rebound from its April lows. The appreciation in the rupee and a rotation of focus to other sectors amid easing geopolitical tensions are also playing a role,” he said.

The Nifty IT index, which had rebounded to 30,900 points on Monday from April lows of around 25,700, is now hovering near 30,700—a level that marks an almost exactly 50 percent pullback from its peak of 46,000. Historically, this 50 percent zone often acts as a key decision point for traders and institutions alike, separating temporary pullbacks from sustained trend reversals.

“Bias remains bullish for the near term, especially with mid-cap names like Coforge, LTIMindtree, and Persistent Systems showing continued strength. But a break above the 50 percent retracement zone and follow-through beyond 40,300 is key to confirming the next leg of the rally. If that happens, we could see the index re-testing the 41,800 level,” Palviya added.

While the longer-term structure remains intact, cracks are appearing in the short-term narrative. BNP Paribas recently flagged a noticeable drop in deal activity for April compared to March. Most of the new signings were concentrated in digital transformation, cloud and AI services—key growth levers—but the overall deal values were lower. Moreover, the three-month rolling deal-win momentum, a leading indicator of future revenues, also declined.

This slowdown, combined with a tepid global backdrop, has prompted investors to temper expectations. US futures tied to the Dow Jones were last seen down 0.19 percent, and global equity sentiment has remained cautious. For India’s export-oriented IT sector, a stronger rupee adds further margin pressure, chipping away at earnings optimism.

On the macro front, headwinds persist. While companies remain optimistic about AI-led transformation, tangible revenue gains from these investments are likely to play out only over the medium term. Tariff uncertainty in the US and weak discretionary tech spending across global enterprises have kept guidance conservative. Analysts expect a clearer recalibration of deal flows and revenue outlook only by Q2FY26.

At the stock level, mid-cap IT continues to outperform, reflecting investor confidence in more agile business models and niche specialisations. However, for the broader index to move meaningfully higher, leadership from large-cap names like Tata Consultancy Services, Infosys and Wipro is critical—and that has yet to fully materialise.