Indian IT stocks experienced a downturn on Thursday, June 19, 2025, after the US Federal Reserve decided to hold its benchmark interest rate steady. The decision, which maintained the target range at 4.25% to 4.5%, signaled ongoing concerns about persistent inflation and a cautious outlook on the US economy. While the Fed projected two rate cuts in 2025, it also trimmed its rate cut projections for 2026 and 2027, suggesting a more gradual easing of monetary policy.

Following the announcement, several prominent IT stocks faced selling pressure. LTIMindtree witnessed a significant drop of 3.5%, closing at Rs 5,259.5, while Tech Mahindra fell by nearly 3% to Rs 1,662.6. Other companies like OFSS, Persistent Systems, Coforge, Mphasis, and Infosys also experienced declines ranging from 1% to 2.6%. Wipro was a notable exception, trading 0.7% higher, but the Nifty IT index overall slipped by 1.4%.

The Fed's decision to hold rates steady reflects a divergence of opinion within the Federal Open Market Committee (FOMC). Seven out of 19 members now anticipate no rate cuts in 2025, a stark contrast to the four members who held this view in March. This growing internal disagreement underscores the uncertainty surrounding the future trajectory of monetary policy.

Alongside the rate decision, the Fed also downgraded its growth outlook for 2025, forecasting a GDP growth of 1.4%, down from the 1.7% projected in March. This revision indicates signs of a moderating US economy, a crucial market for Indian IT firms, which derive a significant portion of their revenue from the region.

LTIMindtree and Tech Mahindra: A Closer Look

LTIMindtree's stock has shown mixed performance recently. While it experienced a decline following the Fed's announcement, it had demonstrated strong returns over the past few months. LTIMindtree has delivered a return of 1.05% over the past week, 7.98% in the past month, and 22.61% over the last three months. The company's fundamentals also appear solid, with revenue and net profit increasing over the last few quarters. However, analyst target prices suggest a potential downside, with one estimate indicating a roughly -10.58% downside compared to the current price.

Tech Mahindra's stock also experienced a decline, but had previously demonstrated positive momentum. The stock has seen a weekly return of 4.47%, a monthly return of 5.3% and a quarterly return of 20.51%. Furthermore, the company announced a dividend of Rs 30.0 per share on April 24, 2025, with a record date of July 4, 2025.

Broader Implications for the Indian IT Sector

The US Fed's decision has broader implications for the Indian IT sector. A cautious approach to rate cuts and a slower pace of easing can restrict the recovery of discretionary spending, potentially delaying a more robust revival in IT spending. While a weaker rupee can boost export revenues, a weakening US dollar could dampen future revenue visibility, particularly for engagements based on discretionary spending.

Despite these challenges, the Indian IT sector is projected to experience growth in 2025, driven by increased technology spending and hiring. IT spending in India is expected to increase by 11.2% to nearly $160 billion in 2025. Additionally, IT exports are projected to reach $210 billion in the 2024-25 financial year. Emerging technologies, such as AI, cybersecurity, and cloud computing, are expected to drive job growth in the sector, with opportunities projected to surge by 20%. However, upskilling the workforce and addressing cybersecurity threats will be crucial for sustaining this growth trajectory.