IT Rout Deepens Amid Trade Tensions as Trump Imposes 126% Solar Duty on India

Indian stock markets remain under sustained pressure, with the information technology sector continuing to drag indices lower even as escalating global trade tensions weigh on investor sentiment. The recent imposition of steep US tariffs on Indian solar exports has further compounded uncertainty, reinforcing a cautious outlook across sectors. The Nifty 50 fell 1.12% to 25,424.65, while the BSE Sensex declined 1.28% to 82,225.92. The broader weakness was largely triggered by heavy losses in information technology stocks, which are now on track to record their worst month in over two decades.

The Nifty IT index has dropped sharply by 21% in February so far, erasing nearly $68.5 billion in market value across its 10 constituent companies. If the trend persists, the sector could log its worst monthly performance since April 2003 a period marked by geopolitical uncertainty from the Iraq War, weak earnings from Infosys, and the outbreak of SARS in Asia.

Heavyweights Drag the Market

Information technology heavyweights bore the brunt of the sell-off. Shares of Tata Consultancy Services, Infosys, HCLTech, and Wipro declined between 2.7% and 6.1% during the session.

Market analysts noted that the technical breakdown in the information technology index signals a shift in investor strategy. According to brokerage assessments, the market appears to have moved from a “buy-on-dips” approach to a “sell-on-rise” stance—an indication of weakening confidence in near-term recovery prospects. The weakness in information technology stocks also spilled over into broader segments, with small-cap and mid-cap indices posting modest declines.

AI Disruption: Threat or Transformation?

The sell-off is being driven in part by mounting concerns over the impact of rapid advancements in artificial intelligence on India’s $300 billion-plus information technology services sector. Global corporations are increasingly deploying generative AI tools to automate coding, testing, and maintenance functions areas that have traditionally generated stable revenues for Indian outsourcing firms.

While industry leaders maintain that AI opens new avenues in consulting, systems integration, and digital transformation, investors remain wary of short-term revenue pressures. Clients in key markets such as the United States and Europe are trimming discretionary technology spending, prioritising cost efficiencies amid an uncertain macroeconomic backdrop.

Industry body NASSCOM has projected that sectoral revenues will remain largely flat at around $315 billion in the next financial year, supported by AI-led services and the expansion of global capability centres (GCCs). However, such stagnation marks a clear departure from the double-digit growth rates seen in previous years. Concerns persist that AI could compress billing rates and reduce headcounts faster than companies can pivot to higher-margin offerings.

Global Perspective: A Diverging Asian Story

What stands out is the divergence within Asia. While Indian information technology stocks struggle, AI-linked equities in markets such as South Korea and Taiwan have surged to record highs. Semiconductor and hardware firms key beneficiaries of AI infrastructure demand have outperformed significantly.

This contrast underscores structural differences. India’s information technology sector remains largely service-oriented and labour-intensive, whereas East Asian markets are dominated by hardware players embedded at the core of the global AI supply chain.

Tariff Uncertainty Adds to Pressures

Beyond sector-specific challenges, broader geopolitical uncertainty has also weighed on investor sentiment. Renewed concerns around trade policies under Donald Trump have injected volatility into global markets, further dampening risk appetite.

In a sharp escalation of trade tensions, the United States has imposed a 126% import duty on solar photovoltaic modules from India a move that could complicate efforts to finalise an interim trade agreement between New Delhi and Washington in the near term.

The latest decision, announced by the US Department of Commerce, follows a countervailing duty (CVD) investigation that concluded Indian solar manufacturers had benefited from government subsidies, enabling them to sell products at prices lower than their American counterparts. In addition to India, provisional duties have been set between 86% and 143% for Indonesia and around 81% for Laos.

The development comes just weeks after both countries agreed on a framework to reduce tariffs on select Indian exports. It also follows a period of legal uncertainty in the United States, where the Supreme Court had earlier ruled certain Trump-era tariffs on Indian imports unconstitutional. The administration has since recalibrated its approach, maintaining its broader “America First” policy stance.

The Solar Supply Chain and the China Factor

The surge in solar imports from India and parts of Southeast Asia reflects a broader shift in global supply chains. As the US tightened trade barriers against China, several Chinese solar firms expanded manufacturing in countries such as India, Indonesia, and Laos to retain access to the American market.

In the first half of 2025, these three countries accounted for nearly 57% of US solar module imports. India emerged as a key beneficiary, with exports to the US rising to approximately $793 million in 2024—a ninefold increase from 2022.

Industry bodies in the US have welcomed the move, stating that domestic investment in solar manufacturing requires a pricing environment not distorted by subsidised imports. A final ruling, alongside an anti-dumping investigation, is expected in July 2026.

Impact on India’s Solar Industry

The imposition of such steep duties poses a significant setback for India’s solar manufacturing sector, which has been expanding rapidly as part of the country’s clean energy and industrial strategy.

By early 2026, India’s solar module manufacturing capacity had crossed 160 gigawatts (GW), far exceeding its domestic demand of 40–45 GW. Exports particularly to the US have played a crucial role in absorbing this surplus capacity.

With access to the US market now severely constrained, the industry faces a dual challenge: excess capacity and limited alternative export destinations. An influx of unsold inventory into the domestic market could trigger oversupply, leading to downward pressure on prices. Industry observers suggest companies may be forced to explore new geographies, although global demand remains uneven and protectionist measures are rising across markets.

Implications for US Renewable Energy Goals

While the tariffs are intended to protect domestic manufacturers, they may also raise costs for US solar developers. American renewable energy projects have relied heavily on imported panels to keep installation costs competitive.

Reduced imports from India could drive up procurement costs, potentially slowing the pace of solar deployment particularly at a time when the sector is already grappling with high interest rates and policy uncertainty. The US solar industry thus faces a delicate balancing act between industrial policy objectives and climate commitments.

Trade Agreement at a Crossroads

The solar dispute arrives at a sensitive juncture in broader India–US trade negotiations. Both countries had recently signalled intent to deepen cooperation across sectors, including technology and supply chains.

However, the tariff action underscores the persistence of protectionist tendencies in US trade policy. For India, which has positioned itself as a strategic partner in diversifying global supply chains away from China, the move is a reminder that access to the US market remains contingent and politically influenced.

As markets move further into the new financial year, the twin pressures of technological disruption and rising trade barriers continue to shape investor sentiment. The ongoing weakness in information technology stocks and the fallout from fresh tariff measures highlight a broader shift in the global economic landscape.

Whether this phase marks a temporary adjustment or a more prolonged structural transition remains to be seen. Much will depend on how effectively Indian industries navigate AI-led transformation and an increasingly protectionist global trade environment.

For now, caution prevails in the markets, with investors closely watching policy signals and corporate responses for clearer direction in the months ahead.