The Indian tech stocks have been at the centre of many discussions. From a weak demand outlook, growing layoffs to growing investment in AI, the IT sector has been buzzing with action. As India Inc stands at the threshold of a brand new year- 2026, international brokerage house Jefferies believes that the “growth outlook remains uncertain” for the IT sector.
Wondering why is that so? For starters, Accentures outlook pointed towards a slower demand. But that ‘s not all. Jefferies highlighted four key concerns.
#1 Earnings downgrades drag large IT
Earnings have been the big talking point. Most of Indian Inc is pinning its hope on a pick up in the subsequent quarters after a rather disappointing first half of FY26. For the IT sector too, analysts cut earnings estimates by 3–12% in 2025. But this was mostly a case for the large caps.
The picture is slightly different for the midcap IT forms. Most mid-sized IT companies saw their earnings estimates raised and the stocks outperformed the Nifty IT index by 11–20%.
Jefferies highlighted the link between earnings and stock performance in the tech sector. It pointed out that the IT stocks “have strongly outperformed only when the sector witnessed sharp earnings upgrades,” which is not the case currently.
#2 Muted outlook may cap IT stock gains in 2026
One factor that can be attributed to the muted earnings picture has been the growth uncertainty. In fact, growth uncertainty is also likely to hold back IT stock performance. Accenture’s FY25 guidance signals a flat revenue trajectory even in the most optimistic scenario. With these muted cues, the market’s expectation of around 7% dollar revenue growth appears stretched.
This, therefore, is an area of concern that the IT sector is looking to navigate.
The sluggish demand environment in several sectors that the IT companies service is also weighing down expectation of a material surge going ahead.
#3 Derating and elevated valuations
The Jefferies report also pointed out that “along with earnings cuts, derating has also taken place,” as PE multiples at the start of 2025 were fairly elevated. Despite the recent correction, Nifty IT still trades at a 33% PE premium to Accenture and this could limit foreign investor interest. Domestic mutual funds are also no longer underweight IT, so fresh buying will likely depend on whether the sector’s growth outlook gets better. Though this is primary a stock market concern, in the current situation the sentimental impact also needs to be evaluated.
#4 Valuation slide adds to pressure on IT stocks
Another concern for the IT sector is that the valuations have fallen sharply in 2025— Nifty IT’s PE ratio has dropped 16% due to macro and AI-led uncertainties. PE multiples were also higher than usual at the start of 2025 (about 15% above the 5-year average), making them more vulnerable. As a result, stocks with very expensive valuations saw bigger corrections even if their earnings were strong, while those with more reasonable valuations fell less.
Jefferies noted that as most of the IT stocks are trading close to their 5-year average PEs, the risk of further valuation cuts is lower than last year. But a big rebound in valuations is unlikely because PE ratios usually rise only when revenue growth expectations improve.
With the uncertainty around US-India trade deal continuing, investors and analysts will be closely watching the IT sector in 2026. Uncertainty over its growth outlook and its impact on earnings may continue to weigh on valuations in the new year.