TCS, Infosys to Coforge: Indian IT stocks bleed up to 6% as US recession fears mount. Is the worst yet to come?

Stock market today: Indian technology stocks continued to witness heavy selling pressure from Dalal Street investors for the second straight session on Friday, April 4, with the Nifty IT index shedding 3.3% to touch a 9-month low of 33,663. All sectoral constituents traded with cuts, in the range of 2-6%, with Coforge shares worst hit. Index heavyweights, such as Infosys, TCS and HCL Tech, also traded over 2% lower each.

This loss builds on the 4.21% crash in the previous trading session, as fears of a US recession have intensified after President Donald Trump added more countries to his tariff radar, sending further shockwaves through the global economy.

This week so far, the index has lost 9% of its value and has crashed 27% from its December 2024 high.

Trump has been wielding his tariff weapon aggressively to narrow the trade gap with the country’s top trading partners. In his latest move, he announced reciprocal tariffs on 180 nations, including India, on Wednesday—prompting concerns of retaliatory measures from affected countries.

The tariff measures have sparked fears among global investors that they could hurt the US more than its trading partners, as higher prices for goods—from cars to apparel—would ultimately be borne by consumers. This could lead to rising inflation and a slowdown in spending, potentially cooling the economy, given that consumption is the primary driver of US growth.

Amid concerns over a potential economic slowdown, US markets have been witnessing heavy selling pressure, which intensified on Thursday, sending the S&P 500 back into correction territory.

A combined $2.4 trillion in market value was wiped off S&P 500 companies, with the benchmark suffering its largest one-day percentage decline since June 2020.

Indian IT sector reels under pressure

Meanwhile, Indian domestic tech companies, which derive 60–80% of their revenue from the US market, are also facing sustained investor pressure amid concerns that a potential slowdown in the American economy could impact their growth prospects.

Indian tech giants began the year with high hopes for pro-growth policies from the Trump administration. However, they were soon hit by a series of tariff-related announcements, causing investors to lose confidence in tech stocks amid fears that a potential slowdown in the US economy, triggered by trade wars, could lead to fewer deals.

In addition, the ongoing tariff tensions have also reduced the probability of US Federal Reserve rate cuts, with global brokerage firm Morgan Stanley now expecting no interest rate cut from the Fed in 2025—revising its earlier forecast of a 25-basis point cut in June.

US economic outlook dims

Analysts at JP Morgan warned that the risk of the global economy falling into a recession has increased from 40% to 60% in response to Wednesday's "Liberation Day" tariff announcement, Business Insider reported.

The banking giant's economists describe tariffs "at a basic level" as a functional tax increase on US household and business purchases of imported goods.

JPMorgan's analysts found that this week's announcement, on the heels of earlier tariff increases, raises the US average tax rate "by roughly 22 points to an estimated 24%," equivalent to roughly 2.4% of the total value of all goods and services produced within the country, or GDP, as per the report.

Likewise, UBS expects a tariff-related slowdown in growth in the US in the second and third quarters of the current calendar year. The brokerage said the Trump administration’s actions had already increased the US effective tariff rate from 2.5% to approximately 9.0%, the highest since World War II.

"Our initial estimates suggest that Wednesday’s announcements would bring the effective tariff rate around 15 percentage points higher, to around 25%. Even if tariffs are ultimately reduced by year-end, the near-term shock and associated uncertainty are likely to drive a near-term slowdown in the US economy and reduce full-year 2025 growth to closer to or below 1%. We would also expect the Federal Reserve to deliver 75-100 bps of rate cuts over the remainder of 2025," said UBS in its latest note.

UBS assigns a 30% probability to a downside scenario where the tariffs remain in place beyond 3–6 months or escalate further amid retaliatory responses, which it warns could potentially push the U.S. economy into a recession.

Earlier, Goldman Sachs raised the probability of a US recession to 30% within the next 12 months, up from 20% in its previous outlook.

What should investors do with Indian IT stocks?

Analysts have cut their growth estimates for Indian tech companies, citing ongoing challenges in the US economy, and expect muted Q4FY25 earnings.

Last week, Morgan Stanley advised investors to avoid buying dips in Indian IT services stocks, citing a challenging macroeconomic environment and potential delays in decision-making that could impact revenue growth. The firm expects the fiscal year 2026 revenue outlook for major IT companies to be in-line-to-disappointing.

According to Morgan Stanley, data points such as commentary from Accenture management and their own CIO survey results indicate a conservative start to the year. Most large-cap IT companies are likely to show weak fourth-quarter trends, with quarter-on-quarter growth ranging from -0.9% to +0.4% in constant currency terms.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.