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Informist, Thursday, Feb. 27, 2025

MUMBAI – Information technology stocks are likely to remain under pressure next week amid concerns over the slowing US economy, rising inflation, escalating global trade tensions, and the artificial intelligence model of Chinese startup DeepSeek hurting AI chipmakers, analysts said. However, a positive outlook on technology spending in 2025 could be a trigger for IT stocks, Rishubh Vasa, research analyst covering the sector at Indsec Securities, said.

The market may have been too bullish earlier about the recovery in discretionary spending in the US and, therefore, the revenue growth of IT companies in the financial year 2025-26 (Apr-Mar) and FY27, a senior analyst at a leading domestic brokerage had told Informist Monday. As a result, IT stocks had stayed up despite the weakness in overall market sentiment, and may be correcting now. Vasa added that a stagflation-like situation is expected in the US, and this could hurt India's export-driven sectors like information technology.

With the US being a key revenue driver for India's IT sector, data suggesting a potential slowdown in that country's economy and rising inflation have weighed on export-orientated IT stocks. Globally, too, IT stocks remained weak after chipmaker Nvidia gave weaker-than-expected guidance for its gross margins. Investors are concerned about the slowdown in Nvidia's AI chips with Chinese startup DeepSeek's AI model 'R1' gaining prominence, analysts said. Thursday, Nvidia reported a revenue of $39.3 billion for the quarter ended Jan. 26, up 12% from the previous quarter and 78% from a year ago. The company said it expects its gross profit margins to decline further to 70.6-71% in the upcoming quarter. 

Analysts expect the Nifty IT index to fall further next week before bouncing back. With the index coming close to breaching the 37,000 points level, it is expected to find support at 36600-36800 points, Vasa said. If it slips below 36000 points, it is expected to fall right up to 33300-33000 levels before bouncing back. In that case, the index is anticipated to bounce back to 38500-38600 points in March. 

"We see some stability coming in between the range of 33000-33300 (points)... valuations will be much cheaper as compared to the current scenario," Vasa said. In the near term, the IT sectoral index is expected to find support at 36950 points and face resistance at 38000-38400 points, a derivatives analyst at a domestic broking firm said.

This week, the Nifty IT hit an over-seven-month low of 37318.30 points as foreign portfolio investors continued to sell IT stocks on concerns of rising infation in the US on account of President Donald Trump's tariff measures and the resultant rise in trade tensions. All constituents of the index fell over the week, with Mphasis marking the highest fall of around 13%, followed by LTIMindtree and L&T Technology Services. Tech Mahindra and Wipro were also among the worst-hit stocks in the index this week.

Earlier this week, industry body Nasscom said the Indian IT industry is moving towards achieving $300 billion revenue by FY26. It also said the sector is set to add at least 126,000 new jobs in FY25, taking the total workforce to 5.8 million.

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Following are the resistance and support levels for IT stocks for next week as per calculations based on their prices on the National Stock Exchange:

End

US$1 = INR 87.49

Reported by Arya S. Biju

Edited by Rajeev Pai

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