The Nifty IT index witnessed a sharp decline of nearly 3% in early trading on April 3 as investors reacted to President Donald Trump's 26% reciprocal tariff on Indian exports. With Indian IT firms relying heavily on US clients for revenue, the latest trade policy move triggered a broad-based sell-off, wiping off thousands of crores in investor wealth.

Major IT Stocks Take a Hit

• Persistent Systems, Coforge, and Mphasis suffered the most, dropping up to 8% as mid-cap IT stocks bore the brunt of the sell-off.

• Infosys, TCS, and HCL Technologies—some of India's largest IT service providers—also fell significantly, leading losses on the Nifty 50 index.

• At 9:30 AM, the Nifty IT index was down 2.5%, trading at 35,360.20, continuing its month-long downward trajectory.

Why Are Indian IT Stocks Crashing?

1. Heavy Dependence on the US Market

• The US is the largest market for Indian IT exports, contributing over 50% of total revenues for firms like Infosys, TCS, and Wipro.

• With the new 26% tariff making Indian services costlier, US-based clients may slow down new deals and contracts.

2. Growth Concerns and Valuation Risks

• Morgan Stanley analysts have warned that rising global economic risks and changing technology trends pose a long-term challenge to India's IT sector.

• With valuations already stretched, investor confidence in future revenue growth is weakening, leading to continued selling pressure.

3. Fear of a Prolonged US-India Trade War

• Trump has repeatedly criticized India, calling it a "tariff king" and "tariff abuser."

• Unlike previous trade spats, this round of tariffs directly targets India's biggest revenue-generating sectors, sparking fears of a longer-term economic impact.

How Much Wealth Has Been Lost in the IT Sector?

• The Nifty IT index has lost over 6% in the past month, reflecting growing fears about US economic conditions affecting Indian IT exports.

• Over the past six months, the index has fallen 15%, erasing billions in market capitalization from top Indian IT firms.

• Investor sentiment remains weak, with foreign institutional investors (FIIs) reducing their exposure to Indian IT stocks due to trade tensions and macroeconomic uncertainties.

Will Indian IT Stocks Recover?

Despite the immediate panic selling, analysts believe there is a chance for recovery in the medium term.

• Negotiations between India and the US could result in tariff rollbacks or exemptions for specific sectors.

• Large IT firms with strong client relationships and diversified revenue streams may absorb the tariff impact better than smaller players.

• If the Indian government introduces policy measures to support the IT sector, investor confidence could stabilize over time.

Conclusion

Trump’s 26% reciprocal tariff on India has sent shockwaves through the IT sector, causing a 3% crash in the Nifty IT index. With growth concerns mounting and valuations under pressure, IT stocks may remain volatile in the near future.

Investors should brace for short-term fluctuations but watch for policy responses and potential trade negotiations that could ease the market impact.

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