Mumbai: Traders piled into fresh bearish derivative positions on information technology (IT) stocks on Monday as caution ahead of the third quarter results and some ratings downgrades weighed on sentiment. The NSE’s IT index was down 1.4% at close. Nine out of ten stocks declined between 0.4% and 2.2% on Monday, while LTI Mindtree was the sole gainer, up 0.13%.

“The entire IT pack was down on short buildup,” said Vipin Kumar, AVP, derivatives and technical research at Globe Capital Market.

Kumar said that heavyweights like TCS, Infosys, Wipro, HCL Tech and Tech Mahindra added 3% to 6% of open interest as short buildup, while mid-caps IT stocks, LTIMindtree and KPIT Technologies added around 10% of open interest as short positions on Monday.

Brokerage CLSA downgraded HCL Technologies and Tech Mahindra on Friday, while Citi said it continues to expect a slow and uneven recovery for the sector.

“Traders remain cautious on IT stocks ahead of earnings, with fresh short positions added following multiple broker downgrades seen recently,” said Sagar Shetty, research analyst at StoxBox.

Shetty said the third quarter is typically a softer period for the sector.

“Q3 sentiment remains muted, mainly due to fewer working days, seasonally higher furloughs, slower deal conversions, and delayed budget renewals by clients,” he said. Sumit Pokharna, vice-president, fundamental research, at Kotak Securities, said the market turned cautious following comments by Donald Trump on potential implementation of additional tariffs on India, which led to concerns the IT sector could also be impacted. In the past year, IT stocks have been underperforming the benchmark Nifty. The Nifty IT index is down over 14% in the past year, while Nifty is up 9.1%. However, the IT index has gained 11.1% in the past three months as investors found value in these stocks after the underperformance.

“While we have high hopes for the US economy in 2026, going into the mid-term elections and further Fed rate cuts, the recent rally of the Indian IT sector and largely soft 3Q26 results ahead mean we recommend reducing positions in the sector,” said CLSA’s analysts in the client note.

Citi’s analysts also wrote that the recovery pace would be key, valuations are still not attractive, and they remain cautious. Analysts remain cautious about IT’s outlook for the near term. Shetty said IT stocks are likely to stay under near-term pressure amid ongoing geopolitical uncertainty.

“We remain cautious on the sector and recommend exposure only for long-term investors. We will continue to track management commentary and AI investment plans to assess the sector’s outlook,” he said, naming Infosys and HCL Tech as his top picks.

CLSA said it expects substantial upside for Persistent Systems (high-conviction outperform), Coforge and LTI Mindtree due to stronger earnings growth backed by credible management execution. Among large caps, they prefer Tech Mahindra and Infosys over HCL Technologies and Wipro. “In our view, TCS needs to show strong earnings growth and plug market share losses,” said the note. Pokharna said he remains bullish on Tech Mahindra, Coforge, and TCS from a longer-term perspective.