Indian IT stocks experienced significant selling pressure on Thursday, with the Nifty IT index declining 1.40% to 28,405.35 as investors reacted to the US Federal Reserve's inflation outlook and growing expectations that interest rates could remain elevated for longer. According to Business Standard, Infosys led the losses, declining 2.53%, followed by Persistent Systems (down 1.93%), Tech Mahindra (down 1.53%), Tata Consultancy Services (down 1.41%), Wipro (down 1.12%) and HCL Technologies (down 0.93%). The selling pressure was widespread across the IT sector, with Oracle Financial Services Software dropping 0.84%, while Mphasis and LTIMindtree slipped 0.26% and 0.13%, respectively. Coforge was the sole gainer in the index, rising 1.28%. The cautious outlook weighed on Indian IT stocks, which derive a significant share of their revenue from North America, with investors worried that elevated interest rates could dampen discretionary technology spending by enterprises, affecting demand for IT services.
The weakness in IT stocks followed the US Federal Reserve's decision to keep interest rates unchanged but signal continued concerns over inflation. As reported by Business Standard, the Fed maintained rates at 3.5% to 3.75% with a 12-0 vote for the fourth consecutive meeting, as widely expected. However, policymakers indicated that borrowing costs could remain higher for longer as inflation stays above the central bank's 2% target. Market expectations have shifted significantly, with CME FedWatch data showing traders assigning a 70.1% probability that the Federal Reserve will keep rates unchanged at 3.50%-3.75% at its next meeting, while the odds of a 25-basis-point hike to 3.75%-4.00% stood at 29.9%, up from 6.9% a month ago. The division among policymakers, with half still anticipating at least one more rate hike this year, along with elevated inflation forecasts and slower GDP growth, reflects the Fed's ongoing focus on controlling price pressures even if it moderates economic growth.
Adding to IT sector concerns, Anthropic's Claude Fable 5 raises the risk of revenue deflation for Indian IT services companies, particularly those with significant exposure to application development and maintenance (ADM) services. As per Kotak Securities, Anthropic believes AI-generated code quality is now approaching human levels & could surpass it within the next year. The key concern is that productivity improvements in software engineering are occurring much faster than in non-software domains, increasing the risk of lower effort requirements, reduced billing volumes, and pricing pressure for traditional application development and maintenance contracts. According to Kotak Securities, companies with larger exposure to application services may face greater disruption than peers focused on infrastructure, cybersecurity, engineering services, or BPO. The pace at which enterprises integrate AI models into software delivery workflows will be the key factor determining the magnitude of disruption for the IT services industry over the next three years.
The selling pressure extended to international markets, with US markets falling significantly after the Fed announcement. According to Reuters, the S&P 500 slipped 1.2 percent to 7,420, the Nasdaq Composite dropped 1.4 percent to 26,021, and the Dow fell 1 percent to 51,493. Major tech bellwethers led the losses, with Microsoft, Meta Platforms, Alphabet and Amazon all closing in the red. The two-year Treasury yield jumped more than 16 basis points to 4.216 percent following the Fed's decision. Microsoft dropped 3.8 percent, Amazon fell 3.5 percent, and Nvidia declined 1.3 percent were among the heaviest weights on the S&P 500. As per The Hindu BusinessLine, the cautious opening followed a weak overnight session on Wall Street, where all three major US indices ended around 1 percent lower, with the Nasdaq declining 1.3 percent.
Despite the IT sector decline, the broader market remained relatively resilient with Indian equity benchmarks trading marginally flat in early deals on Thursday. According to The Hindu BusinessLine, at 9.46 am, Sensex traded 82.30 points or 0.11 percent positive at 77,237.92 after opening flat at 77,131.66, while the Nifty 50 inched up 35.60 points or 0.15 percent to 24,121.30 after opening at 24,073.80. The NSE Nifty 50 fell 0.1 percent to 24,058 after gaining 0.2 percent to 24,133.35, while the BSE Sensex fell 0.1 percent to 77,066 after rising 0.2 percent to 77,281. As reported by Moneycontrol, market breadth remained positive with 740 stocks advancing against 289 declines on the NSE. Domestic-focused sectors including Nifty FMCG (up 0.3 percent) and Nifty Realty (up 0.3 percent) also traded in positive territory. The Cboe volatility index finished up 2 points at 18.44 for its biggest one-day increase in four days, reflecting heightened market uncertainty following the Fed announcement. According to The Hindu BusinessLine, the India VIX declined more than 1 percent to 13.04, indicating reduced market volatility, while market breadth remained positive with 2,038 stocks advancing against 1,017 declines on the BSE.
Despite the recent decline, the Nifty IT index hit a 52-week low of 27,078 on May 14, 2026, highlighting the sector's volatility amid global uncertainties. According to Business Standard, in the past three trading days, IT index outperformed the market and gained nearly 4%, as against 2% upward movement in Nifty 50, till Wednesday. However, in the past six months, the Nifty IT index underperformed the market by plunging 27%, compared to 6.6% decline in the Nifty 50. This significant underperformance reflects the sector's sensitivity to global economic conditions and technology disruption concerns, with IT stocks deriving a major portion of their revenue from the North American market, making them particularly vulnerable to rate hike concerns and reduced discretionary spending in the region.
