The Nifty IT index has been the worst-performing sectoral index of calendar year 2026. As of 13 March, it was down over 20 per cent year-to-date – its steepest January-to-March decline since 2008 and worse than the 2020 Covid crash in the same period. The 52-week high of 40,301 feels like a distant memory against the 52-week low of 28,587 touched on 17 March. Foreign institutional investors dumped over ₹17,000 crore of Indian IT stocks in just 28 days. On 13 March, every single constituent of the Nifty IT index was in the red, setting a new 52-week low.

What Caused the Carnage?

The selloff in Indian IT has been driven by three converging forces. First, the US economic outlook. Indian IT companies derive 55 to 65 per cent of revenues from North American clients. The oil shock, tariff uncertainty under the Trump administration, and slowing consumer spending data (December retail sales stalled unexpectedly) have raised concerns about IT budget cuts by US corporates. When the world’s largest economy faces an inflation-growth trade-off, technology spending is often the first discretionary budget to be reviewed.

Second, FII selling. Foreign institutional investors have been net sellers of Indian equities broadly, but IT has been the single largest sector of outflows. The combination of US recession fears, rupee weakness eroding dollar returns, and a risk-off rotation into defensives and commodities has driven systematic de-risking from growth sectors like IT.

Third, global tech sentiment. The Nasdaq has also been under pressure, and Indian IT stocks trade as a high-beta proxy for global technology sentiment. When US tech indices correct, Indian IT amplifies the move due to its direct revenue linkage to US IT spending.

The 18 March Bounce: Is This the Turn?

On 18 March, the Nifty IT index snapped its six-day losing streak and emerged as the top-performing sectoral index, surging over 4 per cent. Coforge and Persistent Systems led with 6 per cent gains, followed by Mphasis, Tech Mahindra, and Infosys. All 10 constituents of the index ended in the green – the first day this has happened in over two weeks.

The bounce was driven by three catalysts. First, valuation comfort. After a 20-plus per cent correction, the Nifty IT index was trading at multi-year low valuations relative to its own history and relative to the broader market. As Choice Institutional Equities analyst Dhanashree Jadhav noted, the recovery was expected as valuations provided strong comfort for investors, making further downside limited. Second, crude oil stabilisation. Brent staying around $101–102 rather than spiking above $120 (the feared scenario from early March) gave markets confidence that the worst-case energy shock may not materialise. Third, positioning for Q4 results. Expectations are for results broadly in line with previous quarters, with potential margin expansion as rupee weakness at ₹92.44 benefits export-oriented IT companies whose revenues are in dollars but a portion of costs are in rupees.

The FII Factor

The ₹17,000-crore FII selloff in IT stocks over 28 days represents one of the most concentrated sectoral liquidations in recent memory. However, this selling appears to be approaching exhaustion. Domestic institutional investors and long-only allocators have been stepping in at lower levels, providing a bid that has so far prevented the index from breaching the 28,500 support zone decisively.

The historical pattern during geopolitical shocks suggests that FII selling tends to peak in the first two to three weeks and then moderates as the initial risk repricing is complete. If this pattern holds, the worst of the FII-driven liquidation may be behind us, though further selling cannot be ruled out if the conflict escalates significantly.

What Matters Next: Q4 Results and FY27 Guidance

The real inflection point for the IT sector will be the Q4 FY26 results season, beginning in mid-April with TCS and Infosys. Three variables will determine whether the current bounce sustains or fades. First, deal pipeline commentary – are US corporates deferring or cancelling IT projects, or is the spending trajectory holding? Second, margin guidance – can companies expand margins through rupee depreciation and operational efficiency despite potential revenue softness? Third, FY27 revenue growth guidance – the market is currently pricing in a meaningful deceleration; any upside surprise could trigger a re-rating.

The IT sector has historically been one of the most resilient segments of the Indian economy through geopolitical disruptions. Its dollar-denominated revenue stream provides a natural hedge against rupee weakness, its asset-light model is immune to commodity cost inflation, and its long-term structural growth drivers (digital transformation, cloud migration, AI adoption) are secular rather than cyclical. The 20 per cent correction has compressed valuations to levels where the risk-reward for long-term allocators is arguably the most attractive it has been in two years.

Disclaimer:
This blog is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Views expressed are based on publicly available information and market understanding at the time of writing and are subject to change. Readers should consult their financial advisor before making any investment decisions. Investments in markets are subject to risk.