A torrent of bad news has impacted investor sentiment surrounding these stocks.
Even long-term investors are now worried about the future of these companies.
One look at the chart of the BSE IT Index will tell you the concerns are genuine. Essentially, over the last four years, the index returns have been zero.
Sure, there have been bullish periods. The spectacular rally after the covid crash in 2020 made the sector one of the best performers on the stock market.
The rally from April 2023 to December 2024 was also quite profitable for investors.
But all things considered, the long-term returns—barring a few exceptions—have been muted.
Now, it’s not as if the entire sector has performed badly… but in general, long-term investors, especially those who bought IT stocks after 2020, won’t be very happy with their returns.
So, what’s the outlook for the IT sector now?
Let’s find out…
Accenture results
Indian IT stocks declined for the sixth consecutive day on Friday. This was a reaction to the results of a US consulting firm, Accenture.
The results were out on Thursday evening after Indian markets closed.
Buy why?
Well, Accenture actually beat expectations with a 1.5% revenue growth in the quarter.
However, the company’s guidance for 2026 was moderate, indicating a slowdown from the strong performance in 2024 and 2025. This aligns with the slowdown in growth seen in Indian IT stocks.
Accenture is considered to be among the strongest IT firms in the world in terms of financials, size, and quality of management.
When the leader of the pack shows even some signs of weakness, there will be a reaction in the stock prices of all the other companies.
But this is not the only reason why Indian IT stocks are under pressure.
The big growth challenge
It’s not breaking news that artificial intelligence (AI) is taking over the world. Long-term investors are concerned that the revenue growth of Indian IT companies will be affected by the rise of AI.
The ever-increasing use of AI is directly tied to the slowdown in technology spending in the western world. Partly this is explained by macro factors, but the widespread use of AI is also playing its part.
Across industries, clients of Indian IT companies are shifting their focus from relatively simple AI use cases to more complex AI applications to justify their return on investment.
Indian IT companies have invested considerable time and money in making their entire workforce AI-ready, in preparation for this disruption.
The industry’s future revenue growth will depend a lot on how it fulfils the demand for AI-related services in the face of intense competition.
And that will decide the future of the stock prices of these companies.
The H-1B visa issue
Indian IT companies have spent many years, since Donald Trump’s first presidency, reducing their dependence on the H-1B visa.
However, the recent decision by the US government to impose a fee of $100,000 on all new visa applications will have a negative impact on these companies from a service delivery standpoint and, more importantly, on their margins.
Thus, in the long term, Indian IT companies will have to adapt to this new reality and find ways to boost revenue growth.
Conclusion
Investors considering IT stocks should ideally broaden their horizons. Consider technology stocks as a whole, instead of limiting one’s options to just software.
Technology stocks are not just limited to the IT industry but encompass many other new technology company stocks.
Several other industries comprise the technology space, and companies are emerging in defence technology, semiconductors, and sustainable technology.
These are also newer fields like cybersecurity, AI and IoT as well. Technology applications are almost limitless and expanding into different areas.
Thus, keeping an open mind and digging deep into the ecosystem will likely result in more opportunities for an enterprising investor.
Investors should evaluate the company’s fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.
Also, check out Equitymaster’s stock screener to find the best Artificial Intelligence stocks in India and the top Internet of Things (IoT) stocks in India.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
