IT is the only heavyweight sector that is trading closer to its yearly lows. One has to only look at this comparison. Nifty 50 is just about 9.2% from 52-week high, and the Nifty Bank is just about 0.5% off its 52-week highs. However, the IT index is a full 27.6% away from its 52-week highs and is actually trading closer to its yearly lows. That is not normal for a sector that still contributes a sizable chunk of the Nifty 50 profits each and every quarter. This dichotomy has also reflected in the weight of the IT index. 

In the recent week, the weight of the IT sector in the Nifty has slipped to 10.2% and, remember, this is the lowest in the last 17 years. At its peak the weight of the IT index was around 17.7% in the Nifty 50 index. Even if you leave out the peak, the average weight of IT sector in the Nifty has rarely fallen below 13.84% and this is the first time that the weight of the IT index has fallen to such a low. That surely reduces the clout of the IT index in influencing the Nifty as other sectors like financials, FMCG, oil, and autos are likely to see a rise in weight. But, why is IT losing prominence now? 

The signals have been around for some time and the factors are fundamental and also momentum driven. One reason the IT sector has been under pressure is the global client preference shift from IT service providers to IT solutions. That is what the big consultancy firms are adopting and that trend is here to stay. Secondly, onslaught of AI is a double whammy. It makes scores of workers in IT firms redundant and also these IT companies find themselves unprepared for the shift. The more immediate factor has been Trump tariffs. It threatens to slow global growth and one big casualty will be the IT spending by businesses globally. That pressure is translating into finer pricing and thinner OPMs for IT. 

The need of the hour is just a change in mindset. IT companies can no longer be a source for labour arbitrage. Indian IT companies have made billions out of this pricing inefficiency. It is now time to use that money to prepare for the new IT order. IT companies have to train their workers in AI, ML, big data; and even the sales team needs training on how to make the big consolidated pitch. Indian IT companies cannot survive just on IT services. They must now offer solutions and they have the cash flows to do that. It is enough of generous dividends and big buybacks. Time to put the cash in the balance sheet to productive use!