Nifty IT in bear market but valuations still expensive, headwinds aplenty, Citi says

Brokerage firm Citi on Wednesday, March 19, said its view on the Nifty IT index remains cautious, despite the index having corrected 20% from their peak last year, which means the index is in “bear market territory”.Despite this correction, which also includes a 16% fall already in the first two-and-a-half months of 2025, Citi finds the valuations of the index to be high at 24 times one-year forward earnings, given the increased global macro uncertainty, particularly as the recent US data points to a tougher near-term outlook.

Disruptions within the AI segment, trends within the Global Capability Centres (GCC) are some additional headwinds, Citi wrote in its note.

Even after this correction, Nifty IT’s premium to the benchmark Nifty 50 index stands at 30%, which is higher than the 10-year average of 12%, which, Citi believes is high, given India’s improving growth outlook.
Citi expects revenue growth for the stocks in its coverage to be at 4% in financial year 2026 to be 4%, similar to what it projects for the current financial year. It added that despite the depreciation of the rupee to record lows, improving margins in a competitive environment will not be easy for these companies.For specific stocks, Citi has upgraded Mphasis to “neutral” from its earlier rating of “sell”, after the stock has corrected 30% from its peak. It has a preference for HCLTech and Infosys compared to its other largecap peers.

Currently, Citi has a “neutral” rating on three IT stocks, which include Infosys and HCLTech and a “sell” rating on nine names, which include Wipro, Tech Mahindra, TCS, and LTIMindtree.

The Nifty IT index snapped its three-day gaining streak and was the top loser among sectoral indices, down over 2% at 9.25 am on Wednesday, March 19. All 10 stocks in the index were trading with losses.

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