Nifty IT index enters bear market! Can it bounce back in near term? Here’s what technical analysts predict

The Nifty IT index has officially entered bear market territory, correcting over 21 per cent from its record high of 45,995.80, which it hit in December 2024. The sharp decline reflects growing concerns over the sector’s growth prospects, primarily driven by fears of a US recession and cautious client spending. Despite a broader market recovery in March, the Nifty IT index has continued to underperform, losing 2.3 per cent this month alone.

Steep Decline in 2025 YTD

The index has shed 16 per cent so far in 2025, extending the weakness seen in the previous months. In February, the IT index pack fell by 12.5 per cent while it lost 1.5 per cent in January. The downward trend is largely attributed to demand concerns from North America, the largest market for most Indian IT companies.

"The Nifty IT index has fallen over 16 per cent in early 2025, driven by the US recession fears, cautious client spending, and rising AI competition. The weakening rupee, typically a tailwind, offered limited support amid global demand concerns. Downgrades by global brokerages and muted growth outlooks have further pressured sentiment," said Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities.

However, Sheth remains optimistic about the sector’s long-term prospects. "With strong fundamentals, ongoing digital transformation, and potential stabilisation in global demand, a recovery cannot be ruled out in the medium term, especially if macroeconomic headwinds ease and client spending improves," he added.

Top Losers and Sector-Wide Weakness

All the constituents of the Nifty IT index have traded in the red so far in 2025. Among the major laggards, Coforge emerged as the worst performer, tumbling 22 per cent. LTIMindtree also fell sharply, losing 20 per cent, followed by Persistent Systems, Mphasis, and HCL Technologies, which were down 19 per cent each.

Heavyweights such as Infosys, Tata Consultancy Services (TCS), Tech Mahindra, and Wipro have also registered substantial declines, falling between 13 and 16 per cent.

Brokerage Downgrades and Outlook

Motilal Oswal Financial Services (MOSL) highlighted in its recent note that sentiment around IT services has turned increasingly cautious from January to March. The brokerage stated that enterprises have adopted a "wait-and-watch" approach, with clients holding back on services spending despite a continued focus on capital expenditure (capex).

MOSL downgraded Infosys to "neutral," Wipro to "sell," and L&T Technology Services to "neutral," citing valuation concerns. The brokerage also cautioned that a meaningful improvement in discretionary spending in FY26 appears uncertain, unlike previous expectations.

However, MOSL remains selectively positive on LTIMindtree and TCS, citing a better risk-reward balance in these stocks.

Technical Outlook: Further Weakness Likely

Rajesh Palviya, Senior Vice President – Head of Technical and Derivatives Research at Axis Securities, noted that the Nifty IT index is in a short-term correction phase, forming lower tops and bottoms. He pointed out that the index is trading below its 20, 50, 100, and 200-day simple moving averages (SMA), reaffirming its bearish bias.

From the current levels, Palviya believes the index has critical support at 36,800. “A breach below this level on a closing basis could trigger further weakness toward 35,500–34,200 levels. On the upside, the index faces overhead resistance at 38,400, with potential bounce-back targets at 39,000–40,500,” Palviyas said. He suggested that traders could use these levels as exit opportunities, while long-term investors could consider accumulating the stocks on significant declines.

Short-Term Bounce Possible

According to Om Mehra, Technical Analyst at SAMCO Securities, IT index currently trades below its 9-day and 20-day exponential moving averages (EMA), signaling persistent weakness. However, he highlighted a double-bottom formation on the daily chart, indicating the potential for a short-term bounce.

The immediate support for the index is seen at 36,200, which aligns with the 161.8 per cent Fibonacci retracement level, a significant technical floor. Mehra expects a gradual recovery, with the index likely to face resistance around the 39,000–40,000 zone. However, he ruled out the possibility of a sharp V-shaped reversal, suggesting that any recovery will be slow and gradual.

In summary, the Nifty IT index’s entry into bear market territory underscores the mounting challenges facing the sector, driven by weak demand, cautious spending, and macroeconomic uncertainties. While technical indicators suggest the possibility of a short-term bounce, the broader outlook remains clouded by global recession fears and muted growth prospects.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.