India’s $254 billion software services industry is likely to be undeterred by a recent weakness in stock prices because analysts say this would be a temporary phase with the net impact of the incoming Trump administration likely to be positive for outsourcers like Tata Consultancy Services, Infosys, HCLTech and Wipro.

The IT indices fell more than 2% on both the National Stock Exchange and the BSE last Thursday, dropping the most among sectoral indices. This after high US inflation for October stoked fears of a delay in the pace of interest rate reduction by the US central bank, which could affect decision-making by American companies that account for 50-60% of the Indian outsourcing industry’s clients.

Experts see this as a temporary blip, stating that the deal momentum has moved forward in the first half of the ongoing fiscal year ending March 2025. While US enterprises will continue to be cautious about technology spending in the fiscal third quarter ending December 31, they predict business to pick up during the January-March period, or at least in the first quarter of the next fiscal year starting April as suggested by latest earnings commentary by companies. This view is backed by the beginning of what is seen as a period of rate cuts in the US and more generative artificial intelligence projects going to production, analysts told ET.

“I prefer not to speculate on stock market movements, as they are influenced by numerous macroeconomic factors. Fundamentally, we anticipate the incoming Trump administration to have a mixed impact on the IT-BP services sector, shaped by factors like tariffs, localisation, regulatory changes and federal decisions,” said Prashant Shukla, vice president at US-based research firm Everest Group.

To be sure, the IT index recovered on Friday to end almost flat, even as the broader BSE Sensex rose 0.96%. On the NSE, the IT index closed 0.41% higher but underperformed the Nifty50 that gained 0.91%.

Shukla said: “The overall effect on individual service providers will depend on their exposure to specific industry verticals and how these factors impact those industries.”

For example, he added, those with significant exposure to product-centric enterprises may face net negative impact as the clients deal with tariff changes. Those focused on service-centric enterprises, however, could see positive outcomes with clients benefitting from factors like deregulation. A large part of the Indian IT sector, including Tata Consultancy Services, Infosys and Wipro, is service-centric.Corporate results for the July-to-September quarter showed a revival of business in the core North American region as well as an uptick in the banking, financial services and insurance (BFSI) sector that constitutes around 30% of the top IT majors’ business. Top-tier software service exporters, including Infosys and HCLTech, also raised their revenue guidance, even as the margin outlook remained unchanged.

Besides the positive signs from BFSI, deal momentum showed incremental growth coming from the manufacturing, healthcare and energy & utilities sectors.

However, big deals in FY25 remained absent, leading to a 0.4% year-on-year decline in total contract value (TCV) reported by the top five IT firms in the first half through September, as per JM Financial analysts. They project FY26 growth to be dependent on a rebound in short-cycle and discretionary deals.

“Indian IT services companies have directed an improved pipeline, demonstrating clients willingness to spend, and expect it to eventually result in better performance in the upcoming quarters,” said Sumit Pokharna, vice-president – fundamental research at Kotak Securities.

He believes that better visibility on economic policies of the new US administration could aid growth in tech spends by enterprises. However, the decision-making timelines for the clients of these companies remain longer, with focus on cost optimisation initiatives.

“Most companies are open to focused inorganic investments to scale faster, expand market presence and address white spaces in capabilities, Pokharna said.

In a report released on November 27, brokerage firm Bernstein maintained its positive outlook, forecasting the start of a “stronger growth” cycle citing a pickup in the BFSI sector and growing scale of AI deals within the IT services industry.

Bernstein expects FY26 to be a normalised year for the Indian IT industry, continuing from the second half of FY25. The brokerage bets on the strength of order book by IT majors and reduced leakages to drive growth.

India’s $254 billion software services industry is likely to be undeterred by a recent weakness in stock prices because analysts say this would be a temporary phase with the net impact of the incoming Trump administration likely to be positive for outsourcers like Tata Consultancy Services, Infosys, HCLTech and Wipro.

The IT indices fell more than 2% on both the National Stock Exchange and the BSE last Thursday, dropping the most among sectoral indices. This after high US inflation for October stoked fears of a delay in the pace of interest rate reduction by the US central bank, which could affect decision-making by American companies that account for 50-60% of the Indian outsourcing industry’s clients.

Experts see this as a temporary blip, stating that the deal momentum has moved forward in the first half of the ongoing fiscal year ending March 2025. While US enterprises will continue to be cautious about technology spending in the fiscal third quarter ending December 31, they predict business to pick up during the January-March period, or at least in the first quarter of the next fiscal year starting April as suggested by latest earnings commentary by companies. This view is backed by the beginning of what is seen as a period of rate cuts in the US and more generative artificial intelligence projects going to production, analysts told ET.

“I prefer not to speculate on stock market movements, as they are influenced by numerous macroeconomic factors. Fundamentally, we anticipate the incoming Trump administration to have a mixed impact on the IT-BP services sector, shaped by factors like tariffs, localisation, regulatory changes and federal decisions,” said Prashant Shukla, vice president at US-based research firm Everest Group.

To be sure, the IT index recovered on Friday to end almost flat, even as the broader BSE Sensex rose 0.96%. On the NSE, the IT index closed 0.41% higher but underperformed the Nifty50 that gained 0.91%.

Shukla said: “The overall effect on individual service providers will depend on their exposure to specific industry verticals and how these factors impact those industries.”

For example, he added, those with significant exposure to product-centric enterprises may face net negative impact as the clients deal with tariff changes. Those focused on service-centric enterprises, however, could see positive outcomes with clients benefitting from factors like deregulation. A large part of the Indian IT sector, including Tata Consultancy Services, Infosys and Wipro, is service-centric.Corporate results for the July-to-September quarter showed a revival of business in the core North American region as well as an uptick in the banking, financial services and insurance (BFSI) sector that constitutes around 30% of the top IT majors’ business. Top-tier software service exporters, including Infosys and HCLTech, also raised their revenue guidance, even as the margin outlook remained unchanged.

Besides the positive signs from BFSI, deal momentum showed incremental growth coming from the manufacturing, healthcare and energy & utilities sectors.

However, big deals in FY25 remained absent, leading to a 0.4% year-on-year decline in total contract value (TCV) reported by the top five IT firms in the first half through September, as per JM Financial analysts. They project FY26 growth to be dependent on a rebound in short-cycle and discretionary deals.

“Indian IT services companies have directed an improved pipeline, demonstrating clients willingness to spend, and expect it to eventually result in better performance in the upcoming quarters,” said Sumit Pokharna, vice-president – fundamental research at Kotak Securities.

He believes that better visibility on economic policies of the new US administration could aid growth in tech spends by enterprises. However, the decision-making timelines for the clients of these companies remain longer, with focus on cost optimisation initiatives.

“Most companies are open to focused inorganic investments to scale faster, expand market presence and address white spaces in capabilities, Pokharna said.

In a report released on November 27, brokerage firm Bernstein maintained its positive outlook, forecasting the start of a “stronger growth” cycle citing a pickup in the BFSI sector and growing scale of AI deals within the IT services industry.

Bernstein expects FY26 to be a normalised year for the Indian IT industry, continuing from the second half of FY25. The brokerage bets on the strength of order book by IT majors and reduced leakages to drive growth.