India’s IT services sector may not have reached its bottom yet, with JPMorgan warning of further downside amid escalating US tariff concerns and rising recession risks.
The Nifty IT index has dropped 20% year-to-date, underperforming the broader market which is down just 2%. The latest 4% single-day plunge on US tariff announcement fears—while the benchmark Nifty remained flat—signals increasing investor anxiety over a potential slowdown in US tech spending.
According to JPMorgan, the recent tariff measures by the US administration were on the hawkish end of expectations. With global decision-making turning uncertain and a potential US recession looming, analysts now believe FY26 could be a complete washout for Indian IT firms.
The brokerage has laid out a bear-case framework for the sector, projecting limited to no earnings growth in FY26 and applying trough multiples to estimate potential downside in FY27. It forecasts further declines of up to 14% for large-cap firms and up to 25% for midcaps.
Tier-1 IT firms like Tata Consultancy Services (TCS), Infosys, and HCLTech—known for their consistent dividend payouts—are seen 6-14% away from bottom valuations. Dividend and free cash flow yields indicate that these companies may be approaching attractive entry points, JPMorgan said.
However, the pain may be deeper for midcap IT firms such as Persistent Systems and Coforge. Applying conservative 1% compound quarterly growth rate (CQGR) assumptions for FY26 and a 1.5x PEG ratio, JPMorgan expects earnings cuts of 10-15% for FY27. The corresponding downside is pegged at 13% for Coforge and 25% for Persistent.
Despite being overweight on midcaps, JPMorgan suggests waiting until earnings are out before adding positions, especially as negative commentary from Tier-1 firms could weigh on sentiment.
“Coforge and Persistent are likely to correct on the back of muted guidance from larger peers,” the note said. “But with both companies reporting later in the earnings cycle, their own commentary could act as a positive surprise.”
JPMorgan remains selective in its recommendations, staying overweight on Infosys and high-growth midcaps, while urging caution ahead of the upcoming earnings season, where FY26 guidance is expected to be conservative.
India’s IT sector, heavily reliant on US demand, faces an increasingly uncertain environment, with the timing of recovery now closely tied to macroeconomic signals and policy moves from Washington.
