The Indian Information Technology (IT) sector faced a significant setback on June 2, 2025, as escalating trade tensions between the United States and China triggered a sharp decline in share prices of major IT companies. The Nifty IT index fell more than 1 percent, settling around 36,948 in the morning session, marking the continuation of losses for the second consecutive day.

This decline stems from renewed geopolitical frictions after US President Donald Trump publicly accused China of violating a recent trade agreement. Through a post on his social media platform, Truth Social, Trump expressed frustration over China's failure to adhere to the terms of the deal, which had temporarily eased tariff pressures and trade uncertainties between the two economic giants. Trump's statement detailed how his administration had initially imposed high tariffs, severely impacting Chinese factories and causing economic unrest, only to negotiate a “fast deal” aimed at stabilizing the situation.

However, according to the President, China has now "totally violated" this agreement, reigniting concerns about prolonged trade disputes. This deterioration has immediately affected markets worldwide, with the Indian IT sector particularly vulnerable due to its strong dependence on US clients and the global supply chain.

Impact on Indian IT Companies

The Indian IT sector derives a substantial portion of its revenue from contracts and clients based in the United States. Consequently, any disruption in US-China trade relations directly influences investor sentiment towards Indian IT stocks. When the tariff war between the two nations intensified earlier, fears of a possible US economic slowdown prompted significant sell-offs in IT shares, which had subsequently rebounded when trade tensions eased.

The latest developments have reversed that trend. Mphasis, India’s seventh-largest IT services company, was the hardest hit, dropping nearly 4 percent to Rs 2,466 per share. This decline was further exacerbated by company-specific news: Mphasis lost one of its oldest and largest clients, accounting for 8 percent of its revenue. FedEx Corp., which previously relied on Mphasis for its IT needs, chose Accenture Plc to handle much of its IT work going forward, signaling increased competition and client shifts within the sector.

Other IT firms also recorded losses. Persistent Systems shares fell over 2 percent to Rs 5,515, while Tech Mahindra and Wipro shares dropped over 1 percent each. Companies like HCL Technologies, Tata Consultancy Services (TCS), Infosys, LTI Mindtree, and Coforge traded with marginal losses, reflecting broad investor caution amid geopolitical uncertainties.

China’s Retaliation and Future Risks

China responded firmly to Trump’s accusations. The Ministry of Commerce issued a statement warning that continued US pressure and trade restrictions would lead to “resolute and forceful measures” from Beijing to protect its interests. This rhetoric signals a potential escalation in the trade dispute, posing risks to global trade and business operations for multinational firms including Indian IT companies.

The trade war, although previously showing signs of cooling, appears far from resolution. The tit-for-tat tariff measures initially imposed had raised concerns over a global recession, as tariffs can increase costs and reduce demand, impacting corporate earnings worldwide. The renewed tensions are likely to add volatility to markets and create challenges for businesses that rely heavily on cross-border trade.

Outlook for Indian IT Sector

The Indian IT sector must brace for ongoing uncertainty amid fluctuating trade relations between the US and China. With a large share of IT revenue linked to the US economy, any further escalation could reduce client spending, delay projects, or shift outsourcing priorities, impacting revenues and profitability.

Investors and industry analysts will closely monitor how companies adapt by diversifying their client base, enhancing service portfolios, or improving cost efficiencies. Additionally, developments like FedEx’s switch from Mphasis to Accenture underscore the competitive pressures within the sector.

Conclusion

In summary, the resurgence of US-China trade tensions has once again rattled Indian IT stocks, highlighting the sector’s sensitivity to global geopolitical dynamics. While the immediate market reaction was negative, the broader implications underscore the need for Indian IT firms to navigate an increasingly complex international environment marked by trade uncertainties and client realignments.

Bold key terms such as US-China trade tensions, Indian IT sector, Nifty IT index, Mphasis share price fall, FedEx contract shift, and China’s retaliatory measures emphasize the critical factors influencing the current scenario. As the trade dispute evolves, continuous monitoring and strategic responses from IT companies will be crucial to mitigate risks and sustain growth.

The Upcoming IPOs in this week and coming weeks are Ganga Bath Fittings, Victory Electric Vehicles International, Wagons Learning.

The Current active IPO are 3B Films

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.