The combined market capitalisation of the country's top five IT firms that are part of the BSE Sensex is down 24 per cent since January and their valuation has slipped to lowest levels in the past five years.
Top information-technology services companies continue to lose ground on the bourses as investors turn away from them owing to an earnings slowdown and threat from artificial intelligence.
The combined market capitalisation of the country's top five IT firms that are part of the BSE Sensex is down 24 per cent since January and their valuation has slipped to lowest levels in the past five years.
The sector is trading at a discount to the BSE Sensex and trailing the price/earning (P/E) multiple for the first time in the past four years.
The trailing P/E of the top five IT companies has now declined to 22.3 times from 25.5 times at the end of December last year and a record high of 36 times in December 2021.
The combined market capitalisation of Tata Consultancy Services, Infosys, Wipro, HCL Technologies, and Tech Mahindra declined to Rs 24.86 trillion on August 8 from Rs 32.67 trillion at the end of December.
Among individual companies, TCS, the industry leader, has been the biggest loser and its market capitalisation is down 26 per cent year-to-date (YTD) in 2025.
It is followed by Infosys, which is down 24.3 per cent and HCL Technologies 23.1 per cent.
Tech Mahindra has been a relative out-performer and has lost just 13.2 per cent, while Wipro is down 20.7 per cent YTD.
Analysts attribute the decline in share prices and market capitalisation to an earnings slowdown besides sector rotation.
"The IT companies' revenue and earnings growth in April-June 2025 was below par with low single-digit growth in net sales and net profit," said Dhananjay Sinha, co-head, research and equity strategy, Systematix Institutional Equity.
"Investor sentiment was further dented by Tata Consultancy Services' admission about growth challenges facing the industry and headcount reduction," Sinha added.
IT companies' stock prices took a hit from a selloff by foreign portfolio investors (FPIs).
"FPIs have been big sellers in recent weeks and they had a big exposure to top companies such as TCS, Infosys, and HCL Technologies," added Sinha.
Others point to global growth uncertainties owing to American President Donald Trump's trade war leading to weak demand, which has led to underwhelming results across the sector.
This softness has manifested in multiple ways -- margin pressure, increased reliance on balance sheets to drive growth, and heightened aggression in cost take-out deals.
'Revenue performance was weak in Q1FY26 (April-June 2025) with four of the five large IT companies reporting revenue decline on Q-o-Q basis and three of the five on a Y-o-Y basis,' write Kawaljeet Saluja, Sathishkumar and S Vamshi Krishna of Kotak Institutional Equity in their result review of the IT companies.
The combined net sales of the top five IT companies were up just 4 per cent in Q1FY26 to Rs 1.71 trillion, growing at the slowest pace in the last four quarters.
Their combined net profits were up 5.6 per cent year-on-year (Y-o-Y) in Q1FY26 to Rs 27,995 crore, down from 10 per cent Y-o-Y growth in Q1FY25 but an improvement from the 1.5 per cent increase in Q4FY25.
Analysts at Kotak Institutional Equity say the demand environment has taken a slight hit due to uncertainties over the Trump administration's tariff regime with a considerable impact on the retail, logistics, and manufacturing verticals.
IT services are also getting crowded out by other categories of tech investment such as artificial intelligence.
The sector is also paying the penalty for its failure to live up to market expectations.
IT companies had outperformed last calendar year 2024 (CY2024) because investors expected the sector to show better revenue and earnings growth in FY24 compared to FY25.
The combined market capitalisation of the five IT companies was up 16.8 per cent in CY24 against an 8.2 per cent rise in the Sensex in the period.
Investors, especially FPIs, are moving their money away from IT companies after their poor results in Q1FY26.
Feature Presentation: Ashish Narsale/Rediff
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