Why India's IT Rally Is Crashing: What Smart Money Sees in the Fed’s Next Move

• IT giants Tech Mahindra, Infosys, and Wipro fell up to 5% after US jobs data dented Fed rate‑cut hopes.
• The Nifty IT index slid >4%, extending a 12‑month downtrend sparked by AI‑automation concerns.
• Oil’s rise toward $70 a barrel adds inflation pressure on India’s trade deficit.
• Broad market breadth turned negative: 1,468 advancers vs 2,011 decliners.
• Technical charts show the Nifty hovering near a key resistance at 26,000, with support around 25,700‑25,780.

You missed the warning signs on India's IT sector, and the market just proved it.

Why the IT Index’s 4% Drop Mirrors a Global AI‑Driven Shift

After a bruising 12.6% plunge in 2025, the Nifty IT index is down another 11% YTD 2026. The catalyst? A two‑pronged shock: better‑than‑expected US jobs numbers that push the Federal Reserve’s rate‑cut timeline farther out, and a wave of AI‑automation headlines that threaten traditional billable‑hour models. Analysts argue that AI tools can replace routine coding and testing, compressing the labor‑intensive delivery engines of firms like Tech Mahindra, Infosys, and Wipro. When headcount shrinks, revenue per employee drops, squeezing margins.

Key takeaway: If AI erodes billable hours, earnings forecasts will be trimmed, and the sector’s valuation multiples could compress further.

How US Jobs Data and Fed Policy Are Squeezing Indian Equities

January’s US payroll report added 130,000 jobs, nudging the unemployment rate to 4.3%. That data reinforced market expectations that the Fed will keep rates steady or even hike later this year. For Indian investors, the signal is clear: a prolonged high‑rate environment in the US strengthens the dollar, making foreign‑currency‑denominated earnings less attractive and raising the cost of capital for import‑heavy firms.

In India, the RBI is likely nearing the end of its own rate‑cut cycle, with inflation projected to re‑anchor around the 4% target by FY27. The combination of a “no‑cut” Fed and a stable Indian monetary stance leaves equities with fewer tailwinds, especially those heavily exposed to global spending cycles, such as IT services.

Oil Price Surge: Hidden Drag on Indian Trade Balance

Brent crude edged up 0.46% to $69.72 per barrel amid escalating US‑Iran tensions. India imports roughly 80% of its oil, so each dollar rise widens the trade deficit and feeds domestic inflation. Higher energy costs can erode consumer discretionary spending, indirectly hurting sectors like retail and automotive, while also pressuring the rupee.

Investors should monitor the 25,000‑25,500 support zone on the rupee‑dollar chart; a breach could accelerate capital outflows from equity markets.

Sector‑by‑Sector Pulse: Winners, Losers, and the Breadth Meter

While IT stocks dragged the market, financials such as Bajaj Finance and State Bank of India bucked the trend, posting up to 2% gains on robust credit growth and stable net interest margins. Conversely, the broader market breadth turned negative: 1,468 stocks advanced versus 2,011 that fell, a classic sign of weakening momentum.

For context, a negative breadth often precedes a deeper correction, as selling pressure spreads beyond the headline laggards.

Technical Landscape: What the 25,700‑25,780 Support Zone Means

The Nifty is trading above its 200‑day and 50‑day moving averages, which traditionally act as dynamic support. Immediate resistance looms at the 26,000 level; a clean break could unleash a rally toward the all‑time high of 26,373. On the flip side, the 25,700‑25,780 corridor is the next defensive pocket. Should the index slip below 25,700, we could see a retest of the 25,300‑25,400 range, echoing the pattern observed in Q4 2023 when the market recovered from a similar breach.

Technical traders often watch the Relative Strength Index (RSI) for overbought/oversold signals; currently the RSI hovers around 45, indicating neutral momentum but leaving room for a rapid swing.

Investor Playbook: Bull vs. Bear Scenarios

Bull case: If the Fed signals a pause or a future cut, risk appetite returns, boosting offshore IT contracts. A modest AI adoption curve could allow Indian firms to monetize new services, stabilizing margins. Oil prices retreat below $65, easing inflation and trade‑deficit concerns. In this environment, a breakout above 26,000 could trigger a short‑term rally, rewarding long positions in IT and export‑oriented names.

Bear case: Persistent Fed hawkishness and entrenched AI disruption compress IT earnings, prompting further sectoral sell‑offs. Continued oil price pressure fuels fiscal deficits and rupee weakness, prompting foreign investors to rotate out of emerging‑market equities. A breach below 25,700 could trigger algorithmic stop‑losses, accelerating a slide toward the 25,300 support.

Strategic tilt: Consider a defensive overlay with high‑quality banks and consumer staples, while keeping a selective long bias on IT firms that have announced concrete AI‑partner strategies or diversified revenue streams.