Indian IT stocks are back under pressure when the fear of a recession guided by the US is gaining control after the announcement of President Donald Trump of radical “mutual rates” on more than 180 countries. The United States remain the most critical market for Indian IT services, and every delay in that economy is expected to sign the growth of the sector considerably. Analysts at Kotak Institutional Equits have now sounded a new warning, which are projected a potential disadvantage of a maximum of 38 percent in Indian IT on stock if the global economy goes into a recession induced by rate.
The Nifty IT index saw a modest recovery in today’s session and won 1.7 percent. However, the bounce comes after a sharp three -day losing series, in which the index fell by 2.5 percent, 3.5 percent and 4.2 percent respectively.
Despite the win of the day, the wider trend remains negative. In the past year, the index has fallen by more than 7 percent. The weakness has also been expanded to the current financial year, with April only witnessing a decrease of 10 percent so far. This marks the fourth consecutive month of losses for the sectoral index, after a fall of 1 percent in March, a steep decrease of 12.5 percent in February and a dip of 1.5 percent in January.
Bear-Case predictions suggest a deep correction forward
In his latest report, Kotak Institutional Equites estimated that it could be in stock under cover with 19-38 percent compared to current levels in a sausage case scenario. The brokerage said that the total disadvantage of the sector could be up to 38 percent in a recession environment caused by the new American rates.
According to the report, it is unlikely that the Indian IT industry witnesses the same strong recovery that it has received in earlier decline, such as the recessions of 2009 and 2020. “In contrast to 2009, when the replacement of outsourcing and legacy suppliers caused growth, or in 2020, a limited visibility of digitais of digitais of digitizing and dedication of digitizing and of digitizing of digitizing and digitizing of digitais of digery of digitizing and digitized of digitizing and digitizing of digery of digery of digitizing and of digitizing of digitizing and dedication of digitizing and of dedication of digitizing and dedication of digitizing and of dedication. Named opportunities that pop up this time after a recession, “said the note.
Gedempte growth and margin pressure forward
The brokerage expects a slow and uneven recovery of sales after the recession. In his basic scenario, which does not accept a recession but a delay in growth, Kotak predicts sales growth from only 3.7 to 4.5 percent in FY27E for top companies such as Tata Consultancy Services (TCS), Infosys and HCL Tech. The growth is expected to be led by cost optimization deals and a small recovery of discretionary expenses, although this is likely to be compensated by the price pressure of AI-led automation and persistent cost control.
Margins are also expected to come under pressure. Kotak projects a contraction of 90 to 140 basic points in EBIT-Marges during FY26-27 for IT companies with large CAP, because the prices remain weak, the support support of the rupees debit fades and drying up traditional margin herds. Tech Mahindra is expected to see a steeper margin falling compared to peers.
TCS, Infosys, HCL Tech, Coforge seen as relatively safer bets
Under large IT names, Kotak regards TCS as the least narrow risk, followed by Infosys, HCL Tech and Coforge. Middle-IT companies such as persistent systems and MPhasis, on the other hand, are seen as the most vulnerable for corrections, both in terms of income and appreciation.
Although the company believes that companies that can conquer market share through supplier consolidation or large innovations can use better ratings, the overall expectation is still a steep disadvantage of 19-24 percent for large caps and 21-35 percent for IT companies in the coming 12 months.
Kotak has also revised his price-to-win (PE) several assumptions, in the expectation that they will bottle tones and slightly higher for some mid-tier in the reach of 15-18x for Tier-1 companies. This translates into a reduction of 22-38 percent into the target prices of the base and 18-35 percent of the current stock levels.
In summary, the aggressive tariff policy of the Trump administration has introduced a new layer of uncertainty for the IT sector of India, which is already struggling with a global slowdown in growth. While industry -bell whales such as TCs and Infosys can do relatively better, Kotak Institutional Equites believes that the wider IT room could be dealing with meaningful valuation corrections such as recession disorders. Investors are advised to be careful because price pressure, margin squeeze and limited after-recession steel wind can weigh on the prospects of the sector in the short term.
Disclaimer: The views and recommendations made above are those of individual analysts or brokers, and not from Mint. We advise investors to check with certified experts before we make investment decisions.
