Indian IT stocks are likely to remain under pressure when markets open on Wednesday after a sharp selloff in US-listed technology companies, triggered by IBM's weaker-than-expected outlook and concerns over slowing enterprise software spending.
The caution comes as Infosys and Wipro ADRs tumbled in US trading following IBM's earnings warning, raising concerns about sentiment towards the broader Indian IT sector.
Infosys ADR initially slumped 7.91% to $11.50 before trimming losses to around 4.8% later in the session. Wipro ADR fell 4.21% to $1.90 and continued to trade nearly 4% lower after the market opened.
The weakness extended beyond Indian IT names. IBM shares plunged as much as 25% after the company forecast second-quarter revenue of $17.2 billion and adjusted earnings per share of $2.93, both below Wall Street expectations.
The selloff spread across the software sector, with Cognizant, Accenture, Salesforce, Adobe, Oracle and ServiceNow also trading lower as investors reassessed enterprise technology spending trends.
IBM said clients had shifted technology budgets towards AI infrastructure, including servers, storage and memory, resulting in lower spending on software and consulting projects.
ALSO READ: Cognizant, Salesforce, Accenture Slide Up To 3% As IBM's Weak Outlook Sparks Software Selloff
CEO Arvind Krishna said customers accelerated hardware purchases to secure supply-constrained infrastructure ahead of expected price increases, leading to a larger-than-anticipated shift in capital expenditure.
Limited Downside Despite Near-Term Pressure
According to Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, IBM's sharp decline is likely to have an impact on Indian IT stocks, but the downside may remain limited given current valuations.
"Indian markets are already trading in negative territory due to concerns around crude oil prices. IT has remained resilient in recent sessions, with buying interest emerging last week," Bathini told NDTV Profit.
He added that market sentiment over the coming weeks will largely depend on the trajectory of crude oil prices.
"IBM is going to have some kind of impact. However, there is limited downside because Indian IT companies are trading close to their long-term average valuations. So the downside is capped," he said.
Bathini also pointed out that the recent decline in ADRs largely reverses the gains made during the previous week.
ALSO READ: Infosys, Wipro ADRs Slump Up To 8% As IBM Flags Clients' AI Pivot, Misses Earning Estimates
"ADRs were also up on Friday. They are now giving up the gains they made last week," he added.
Why IBM Matters For Indian IT
IBM is widely viewed as a bellwether for global enterprise technology spending, making its outlook an important indicator for the broader IT services industry.
The company attributed its earnings miss primarily to customers redirecting spending towards AI infrastructure investments while delaying software implementation and consulting projects.
The commentary has fuelled concerns that enterprises may continue prioritising investments in AI-related hardware over discretionary technology services in the near term.
For Indian IT companies such as Infosys, TCS, Wipro, HCLTech and Tech Mahindra, the shift could weigh on investor sentiment even though their business models differ from IBM's.
At the same time, analysts note that demand for AI-led transformation, cloud modernisation and digital engineering remains intact over the medium term, suggesting that any near-term weakness could be sentiment-driven rather than indicative of a structural slowdown in the sector.
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