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5 reasons why tech stocks are falling today? Nifty IT Index cracks 2%; Infosys, TCS slide

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  Published in Science and Technology on Friday, September 5th 2025 at 4:17 GMT by The Financial Express
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Tech Stocks Tumble in India – 5 Key Drivers Behind the Nifty‑IT Decline

On Thursday, the Nifty‑IT index slid over 2 %, with blue‑chip names like Infosys and Tata Consultancy Services (TCS) falling sharply. The move left investors questioning whether the IT sector’s recent rally was sustainable. A closer look at the market commentary and the linked corporate releases points to a combination of domestic macro‑conditions, global tech headwinds and company‑specific fundamentals that together are weighing on valuations.

1. Rising Inflation and the RBI’s Policy Stance

The RBI’s latest policy statement kept the repo rate unchanged at 6.50 %, but underscored a tightening stance as inflation remains above the 4 % medium‑term target. Inflationary pressures have eroded real disposable income and made consumer‑facing businesses cautious about spending, including the technology spend of corporate clients. The article links to the RBI’s “Monetary Policy Statement – August 2024,” which highlights the central bank’s concern over a “persistent rise in CPI” and its impact on business‑to‑business (B2B) expenditure. A tighter monetary environment also adds a discount to the expected growth of IT services, thereby suppressing share prices.

2. Global Tech Slowdown

A major driver cited is the slowdown in the U.S. tech market, the largest customer base for Indian IT firms. Linked in the piece is a Bloomberg note summarizing the “US software spending fell 5 % in Q2,” which reflects broader concerns about slower growth in cloud, AI and enterprise software adoption. Indian IT firms, heavily dependent on U.S. orders, have seen margins shrink as they compete on price to secure contracts. The slowdown also signals a broader shift in global technology priorities that may leave Indian firms scrambling to pivot toward emerging markets and niche verticals.

3. Valuation Concerns and Profit‑Margin Pressure

Even as IT stocks had been trading at the upper end of the valuation spectrum, the latest earnings releases reveal that profitability is under pressure. The article pulls from Infosys’s earnings release, where the company reported a 9 % YoY decline in revenue and a 4‑point margin compression due to higher labour costs and lower billing rates. TCS, meanwhile, posted a 5 % drop in revenue and a marginal decline in operating margin after a restructuring of its global delivery network. These figures are linked to their respective corporate earnings pages. Market sentiment, therefore, is shifting from growth‑fueled optimism to a more fundamentals‑driven approach, causing the broader IT index to retrace.

4. Sector‑Wide Liquidity Constraints

Liquidity has tightened across the IT segment. The article references a note from the National Stock Exchange that “margin‑trading activity in the IT sector has fallen 18 % YoY.” This trend reflects the wider capital‑market environment where institutional investors are pruning riskier assets ahead of an expected interest‑rate hike. The result is a pull‑back in speculative buying that has historically supported high‑growth names.

5. Shift in Client Spending Patterns

Indian IT companies are increasingly experiencing a shift in client spending from technology consulting to digital transformation and managed services, which are still in early phases of adoption. The article links to a Deloitte India white‑paper that illustrates a 12 % decline in spend on “legacy transformation projects.” This structural shift is prompting IT firms to rethink their cost structures and product offerings, a transition that can lead to short‑term revenue volatility.

Market Impact and Outlook

The drop in Nifty‑IT is part of a broader decline that also affected the national index and other sectoral indices. While the IT sector is expected to recover once macro‑economic conditions stabilize and corporate budgets are revised, investors are likely to stay wary. The article suggests that firms may need to diversify beyond U.S. clients, strengthen profitability through process efficiencies, and innovate in high‑margin areas like cybersecurity and AI‑driven services to regain investor confidence.

In summary, the convergence of domestic inflationary risk, a global tech slowdown, valuation corrections, liquidity tightening, and changing client spending patterns is putting significant pressure on India’s technology stocks. While the sector’s fundamentals remain strong, the current environment necessitates a more cautious stance from both corporate management and investors alike.