Indian IT stocks decline as US jobs data fuels rate hike concerns

Indian IT stocks dropped on Monday as stronger-than-expected US jobs data revived concerns over a September Federal Reserve rate hike. The Nifty IT index dropped over 2%, with Infosys, HCLTech, TCS and others declining. Analysts, however, see longer-term opportunities from AI-led spending on deployment, integration and modernisation.

Shares of Indian IT companies including Infosys, HCLTech, TCS, Wipro and others dropped up to 3% on Monday as stronger-than-expected US jobs growth data boosted bets of a September interest rate hike by the Federal Reserve.

The Nifty IT index dropped over 2% to trade at 30,082 on Monday, leading losses among all the major sectoral indices on the stock market. Infosys, LTI Mindtree and Mphasis shares dropped around 3% each, while those of Tech Mahindra, OFSS, Coforge, HCL Technologies, Wipro, Persistent Systems and TCS fell 1-2%.

US job growth accelerated sharply in August while the unemployment rate remained steady at 4.1%, implying an improvement in the labour market after recent struggles, data released on Friday showed. US nonfarm payrolls increased by 1.62 lakh in August, well above economists' expectations of a gain of 56,000.

The sharp growth boosted hopes for a rate hike by the Federal Reserve in September, with traders now pricing in approximately 57% chance of a rate increase this month. Higher US rates could curb client spending, weighing on Indian IT firms that generate a significant share of their revenue from the United States.

IT stocks on Dalal Street have seen sharp upswings and downswings recently. Earlier this year, the sector witnessed a sharp selloff after breakthroughs by AI startups fuelled concerns about potential disruption to the traditional IT services business model. Later, a sharp selloff in global tech leaders proved to be a blessing in disguise for Indian IT stocks, which emerged resilient amid the global tech rout.

HSBC said India can serve as an “anti-AI” diversifier as sharp swings in technology-exposed markets encourage foreign investors to broaden their portfolios. HSBC strategists Prerna Garg, Herald van der Linde and Yogesh Aggarwal said in a report that AI-rotation outflows from India have “largely played out.”

While AI jitters continue to keep IT investors on the edge, CLSA downgraded several heavyweight stocks and revised their target prices, although it remains bullish on several mid-tier IT vendors.

Indian IT has gone through a near three-year spending recession, on the back of weak discretionary budgets, elongated deal cycles, H-1B headwinds, AI driven revenue deflation and a selloff triggered by fears that agentic tooling would automate the legacy stack directly, Anand Rathi said in August. However, it thinks that fear inverts the actual set-up.

“Our core thesis is that the AI cycle is pivoting from "building capacity" to "proving payback“ — a transition that is inherently services-heavy and plays squarely to Indian IT's strengths in deployment, integration, governance and legacy modernisation. Value is migrating from the layer that funds the AI build to the layer that deploys it: first to the enterprise software platforms — Systems of Record and Systems of Action that hold the data, permissions and approvals — then to the services firms that integrate and run them. This is the cloud playbook rerun: capex builds first and the returns arrive later, to different players, as railways, fibre and the 2015-19 cloud J-curve all showed,” it added.

The brokerage feels near-term weakness is real, due to AI-led pricing deflation compounded by geopolitics. But AI is expanding the TAM, not compressing it, opening deployment, AI FinOps, governance, managed agent operations, legacy modernisation, sovereign AI and SLM pools, it said. “Indian IT offers this without the balance-sheet and funding-duration risk the infra layer carries — the "safe AI" trade,” it added.