IT stocks lead losses in lacklustre session, NIFTY IT index falls over 1%; here's why

Shares of information technology (IT) companies were leading losses in an otherwise lacklustre session on Monday, May 19. The measure of IT stocks on the National Stock Exchange - NIFTY IT index - fell over 1% and was top loser among the major sector gauges compiled by the NSE. IT shares came under selling pressure after credit ratings agency Moody's Ratings downgraded the sovereign credit rating for the United States, the biggest market for Indian IT companies.

Selling pressure was visible across IT shares as the gauge of mid- and small-cap IT stocks - NIFTY NIFTY MIDSMALL IT & TELECOM index was down 1.5%. As many as 13 shares in the 20-stock index were trading lower and all the 10 stocks in the NIFTY IT index were trading with a negative bias.

Mphasis was top loser in the NIFTY IT index, the stock fell 2.14% to ₹2,544. Coforge (-1.76%), Infosys (-1.64%), Tata Consultancy Services (-1.25%), Tech Mahindra (-1.16%) and Wipro (-1.05%) were also among the losers.

Moody’s lowered the rating from a gold-standard AAA to AA1 but said the United States “retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency.’'

Moody’s is the last of the three major rating agencies to lower the federal government’s credit. Standard & Poor’s downgraded federal debt in 2011 and Fitch Ratings followed in 2023.

In a statement, Moody’s said: “We expect federal deficits to widen, reaching nearly 9% of (the US economy) by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.’'

Q4 earnings miss

Mixed earnings and muted revenue growth forecast by most of the IT companies is also adding to selling pressure for IT shares, analysts said. TCS and Infosys the country's top two IT companies posted weaker than expected March quarter earnings last month.

Infosys, the country's second largest information technology (IT) services company, on Thursday, April 17, reported net profit of ₹7,033 crore, marking a decline of 11.75% from ₹7,969 crore in the same period last year. On a sequential basis its net profit rose 3.33%.

Infosys has lowered its revenue growth guidance to 0%-3% in constant currency terms for the current financial year but maintained operating margin guidance in the range of 20%-22%.

The company had given guidance for revenue growth of 4.5%-5% for financial year 2025. The sharp decline in revenue growth outlook came on the back of uncertain environment for the IT industry, company said in a press briefing.

TCS' net profit in Q4FY25 declined 1.6% year-on-year, while the revenue from operations grew 5.2% YoY. Here is a look at the major financial metrics of TCS Q4 results.

As of 1:56 pm, NIFTY IT index traded 1.3% lower, underperforming the NIFTY IT index which was down 0.3%.