Nifty IT Underperformance Explained – Nasdaq Outshines Indian IT in 2025: How Rupee Depreciation and Global Tech Trends Shaped Nifty IT Returns 26Jan2026
(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
Nifty IT Index vs USD INR vs Nasdaq Composite: Calendar Year Returns 2010-2025:
Indian IT companies earn a large share (over 70 per cent) of their revenues in US dollars while most of their costs are in Indian rupees. A weakening rupee typically boosts reported earnings and margins when dollar revenues are converted into rupees.
The blog examines these relationships using data from the past 16 years, showing how Nifty IT performed in relation to the US technology stocks and Nasdaq Composite and fluctuations in the rupee–dollar exchange rate.
The above chart shows:
> Nifty IT index total return (including dividends) in rupee terms
> USD INR change - Dollar gain vs Indian rupee
> Nasdaq Composite total return in dollar terms
> Nasdaq Composite outperformance over Nifty IT
> Nifty 50 Total Return (additional data to compare with Nifty IT index)
A caveat: Because Nifty IT is shown in rupee terms and the Nasdaq in dollar terms, this comparison is influenced by movements in the USD–INR exchange rate.
The returns shown above should therefore be read as a mix of equity market performance and currency effects, rather than a pure like-for-like comparison.
(write-up continues below)
------------------------
Related blogs:
Inside the BSE 500 and S&P 500: Top Stocks, Top Sectors, Big Risks 31Dec2025
NSE Indices Calendar Year Returns: 2006 to 2025
------------------------
1. Compare and Constrast Nifty IT and Nasdaq Composite:
Nifty IT (information technology) Index:
The index is designed to reflect the behaviour of companies engaged into activities such as software development, hardware and IT infrastructure. The index comprises of 10 companies.
As of 31Dec2025, the top three stocks account for about 62 per cent of the Nifty IT index, while the top five together make up over 78 per cent, highlighting how heavily the index is concentrated in a few large companies.
Top 5 stocks are:
Nasdaq Composite Index:
The Nasdaq Composite is a broad, market-cap–weighted index of over 3,300 stocks listed on the Nasdaq exchange, heavily dominated by US technology and growth companies.
As of 31Dec2025, the top three stocks account for about 31 per cent of the index, while the top five together make up over 46 per cent, showing how top-heavy Nasdaq is.
The top 5 stocks are:
Nvidia Corp
Apple Inc
Microsoft Corp
Alphabet (Google)
Amazon
As an aside, the same five stocks also dominate the S&P 500 index, but their weights in that index are significantly lower compared to Nasdaq.
Top sector in the Nasdaq is IT with a share of 50 per cent. The top three sectors' share is nearly 80 per cent; while top five make up 90 per cent.
Top 5 sectors are:
Information Technology 50%
Communication Services 15.8%
Consumer Discretionary 13.6%
Health Care 5.8%
Consumer Staples 4.9%
Overall:
Nifty IT is dominated by Indian software services firms earning largely in US dollars, making it sensitive to dollar-rupee movements and global IT demand. Nasdaq Composite is US tech-heavy, with top five companies driving nearly half the index, reflecting broader technology and growth market trends.
While both track technology, Nifty IT is more Forex- and outsourcing-driven, whereas Nasdaq captures US innovation, platforms and sector concentration.
2. Significance of India's Software Services Exports for Nifty IT Index:
The strong growth in India’s IT software services sector directly supports the Nifty IT index, since the index is dominated by companies that earn most of their revenues from software exports and IT services.
Between FY 2019–20 and FY 2024–25, India’s total services exports grew from USD 213.2 billion to USD 387.5 billion, an increase of more than 80 percent, while software services specifically more than doubled from USD 141.8 billion to USD 290.6 billion (see update 21Sep2025 with Chart 124 in India Forex data bank).
This rapid expansion of the underlying industry has been a key driver of Nifty IT’s long-term performance, translating into stronger earnings for the index’s largest constituents like Infosys, TCS and HCL Technologies.
3. Global tech on fire, Indian IT under pressure: Nifty IT vs Nasdaq in numbers:
Over the past three years, Nifty IT has lagged the Nasdaq Composite, most notably in 2025 when the index fell 10.4 per cent in rupee terms while Nasdaq gained 21.1 per cent in dollars, creating a 31.6 percentage point gap.
In 2023 and 2024 too, Nifty IT trailed with underperformance of 18.3 and 5.2 percentage points respectively.
However, in earlier years such as 2020 and 2021, Nifty IT significantly outperformed Nasdaq as shown in the above chart, reflecting the strong demand for IT services immediately after the COVID-19 outbreak.
Looking at trailing returns as of 31Dec2025, the picture becomes more nuanced. The three-year compounded annual growth rate (CAGR) for Nifty IT was 12.1 per cent versus Nasdaq’s 31.4 per cent, showing recent underperformance dominates this period.
Over five years, Nifty IT delivered 11.5 per cent while Nasdaq returned 13.4 per cent, and over ten years, Nifty IT had 15.40 percent versus Nasdaq’s 17.7 per cent (annualised returns).
While Indian IT continues to show strong long-term growth, these figures highlight its gross underperformance relative to global tech in recent years.
AI wave:
Indian IT services growth has faltered, especially after the AI (artificial intelligence) and ChatGPT wave began in Nov2022.
Nasdaq’s outperformance after 2022 has been driven by investor excitement around AI, generative models and rapid growth prospects for US tech companies (the so-called hyper scalers).
4. Headwinds for Indian IT stocks
Reasons denting Nifty IT Index performance in the past three years:
> The Nasdaq is driven by product-based companies, like Nvidia and Microsoft, that own the underlying AI technology and scale infinitely, while Nifty IT relies on a labor-intensive service model
> Global clients in the US and elsewhere slashed discretionary spending on IT services due to high interest rates, directly impacting growth of Indian firms compared to Nasdaq firms
> Global clients have used AI to cut their spending on IT services
> The "Magnificent Seven" stocks created a massive concentration of wealth on the Nasdaq, driven largely by theier supernormal growth in earnings
> A valuation correction (sharp fall in price-earnings multiple) in India following the 2020-2021 surge meant Nifty IT lacked the momentum, while valuation multiples expanded for US tech firms
> the revenue and net profit growth rates of marquee listed IT firms are between 4 per cent to 12 per cent in the past three years, making them unattractive for growth investors
> Rising costs and margin pressures for Indian IT companies
> Global tech stock rally attracting investor flows away from Indian IT
> A common perception is that Indian IT firms underinvested in AI R&D and GenAI tools, leaving them less prepared for the rapid shift toward AI-driven services (Indian IT giants focused more on share buybacks rather than reinvesting cash flows in innovation or build large language models under AI)
Finally, 50% Trump tariffs on India, threat of HIRE Act and H-1B visa curbs weighed on India’s IT sector sentiment by creating uncertainty around US trade policies and client costs.
The visa restrictions also limited Indian IT professionals’ access to the US market, raising concerns about growth and investor confidence.
Fortunately for India, Trump’s tariffs targeted merchandise exports rather than services—an area where India is a global powerhouse.
5. Indian IT Sector and the Dollar Dance:
Rupee depreciation (a stronger dollar) generally help Indian IT earnings, since most revenues are in dollars while costs are in rupees.
However, the correlation with Nifty IT returns is imperfect. In 2022 and 2011, the rupee weakened sharply (conversely, dollar gained 11.4 and 18.9 per cent respectively), but the index still ended in the red with negative returns of 24.5 and 17 per cent respectively.
Similarly, mild rupee depreciation in 2025 and 2015 also failed to boost returns for Indian IT stocks.
On the other hand, in 2010 and 2017, the dollar lost value against the rupee, yet Nifty IT performed very well.
FPI flows to Indian stocks further influence returns, as strong inflows can lift valuations and returns even when currency moves are unfavorable, and outflows can weigh on the index despite a favorable rupee-dollar movement.
In addition to FPI flows, other variables too are at play for Indian IT sector prospects, such as, global demand for IT services, client budgets and investor sentiment which often override currency gains.
Hedging by large IT companies and the index’s concentration in a few firms can also limit the benefit of a weaker rupee.
Taiwan, South Korea and Chinese tech companies attracted significant investor interest in 2025, drawing flows away from Indian IT stocks.
As a result, dollar strength is a tailwind, but it does not guarantee higher Nifty IT returns.
6. Outlook and Takeaways for Investors:
Nifty IT has delivered strong long-term returns, with a 10-year CAGR of 15.4 percent, though recent 1-year and 3-year performance has been more muted (check this NSE Indices for trailing and annul returns of Nifty IT and other Nifty Indices).
The index remains top-heavy, with the largest three to five stocks driving most of the returns, which means that weak performance in just a couple of top companies can drag the entire index down.
Volatility is significant, with a 1-year standard deviation of 21.2 percent, so short-term swings can be sharp. Another risk is that Indian IT has been slow to pivot to AI-led growth, which has allowed global tech stocks, particularly in the US and a few Asian countries, to outperform.
At current levels, Nifty IT trades at a trailing price earnings (PE) ratio of 26.7, slightly above its 10-year median of 25.1, and offers a modest dividend yield of 2.96 percent.
While a weaker rupee continues to provide a natural tailwind, returns are also shaped by global tech cycles, investor flows, and concentration risks.
For investors, this suggests that Indian IT sector offers a long-term growth story, but with higher sensitivity to stock-specific performance, global tech trends and currency movements.
In the first stage of the AI revolution (2023–2025 was the "Hardware & Cloud"), the US companies won by selling the essential chips and cloud infrastructure.
We are now entering the implementation phase (2006-2007), where global businesses need help actually integrating and maintaining these complex AI tools.
This shift could directly play to the strengths of Indian IT firms, who earn their revenue by providing the workforce—including 'agentic AI' (autonomous AI agents that act like digital employees)—needed to deploy and manage technology at scale.
(the blog post is still under construction; please bear with me till i complete it)
- - -
------------------------
References and additional data:
Nifty IT index Nifty Indices factsheet PDF Dec2025
NSE Index dashboard monthly Dec2025 PDF
Nifty Return Profile - Sector indices
WhiteOak Capital MF presentations all - Jan2026 MF product basket
Google Finance comparison tool: Nasdaq Comp vs Nifty IT vs Nifty 50 vs USD INR
Morningstar Nasdaq Composite total return
Fidelity Nasdaq Composite Inded fund - PDF for Dec2025
FRED graph - Nasdaq Composite total return
Nifty IT Index - chart and constituents
Primer on Global Capability Centres: And India is World's GCC Capital 07May2024
Screenshots >
------------------------
Read more:
------------------------
CFA 10 Year Milestone Professional Learning Program 2025 Certificate of Achievement
CFA Charter credentials - CFA Member Profile
CFA New Badge
CFA Badge
Viewing Options for this blog in different formats:
Sidebar and so on
He blogs at:
https://ramakrishnavadlamudi.blogspot.com/
X (Twitter) @vrk100
No comments:
Post a Comment