Indian IT services sector may face indirect challenges due to the reciprocal tariffs, as analysts highlight potential disruptions in economic growth that could affect technology spending particularly in key verticals such as manufacturing, logistics, and retail.
The tariffs are designed to boost American manufacturing but could increase costs for US businesses. This, in turn, could lead to reduced spending on large digital transformation projects, which are a key revenue driver for Indian IT firms.
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A report by Jefferies highlighted: “While the IT sector is not directly impacted by Trump’s tariff order, there may be indirect impacts from slower GDP growth due to higher tariffs which may impact demand.”
On similar lines, Chirag Kachhadiya, a senior research analyst at Ashoka Stock Broking said: “US remains the largest revenue-contributing geography for large-cap IT companies, accounting for over 50% of industry revenue. While we do not expect IT services to face a direct impact from tariffs, restrictive trade policies affecting other sectors and countries could influence overall technology spending. Industries such as BFSI, automotive, retail, and discretionary are particularly vulnerable to these macroeconomic pressures, potentially leading to a further delay in technology investments, which have already been in a holding pattern for the past two years.”
The Nifty IT index plunged 4% intraday on Thursday as investors reacted to the tariff announcement. Major IT stocks, including Infosys, TCS, HCL Technologies and Wipro, fell between 3% and 4%, while mid-cap firms such as Coforge and Persistent Systems recorded steeper losses of 8% and 10%, respectively. The Nifty IT Index has already corrected 20% in the past three months.
Apart from tariffs, analysts note that a rise in onshoring and tighter immigration norms could pose further challenges for Indian IT firms.
Jefferies pointed out that during Trump’s previous term, “H1B visa regime became stricter due to which visa denial rates shot up by five times. This led to supply pressures for Indian IT firms resulting in greater onshore mix and higher usage of subcontractors which resulted in margin pressures.”
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However, the report added that “the impact of this change may be lesser this time as Indian IT firms have higher share of work being done offshore and have also reduced their reliance on H1B visas since 2017 and over 60% of their employees in the US being local hires”.
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