AI‑driven anxiety has sent Indian IT equities tumbling, triggering the steepest foreign portfolio outflow since mid‑2022. Investors dumped roughly ₹11,000 crore of IT shares in early February, pushing the Nifty IT index down 15 percent this month. You’ll see why the sector’s valuation reset matters for both institutions and retail savers.
Scale of the Outflow
According to the National Securities Depository Ltd, foreign portfolio investors pulled out ₹10,956 crore of IT stocks in the first half of February. That marks the heaviest fortnightly exit in more than a year‑and‑a‑half. The outflow wasn’t limited to IT; fast‑moving consumer goods and healthcare also saw exits exceeding ₹1,000 crore each, while financial services attracted net inflows.
Key Drivers Behind the Sell‑off
The catalyst was a fresh AI scare sparked by a report warning that generative AI tools could undercut the economics of traditional IT services. The study warned that AI could erode billable hours, compress margins, and threaten growth for India’s $250 billion technology services industry. Analysts responded by tightening price‑to‑earnings multiples and trimming near‑term earnings forecasts, amplifying the sell‑off.
Impact on Retail and Mutual Fund Investors
Retail investors, many of whom built IT exposure through systematic investment plans, are now seeing their portfolios wobble. IT accounts for over 10 percent of holdings in top‑tier mutual funds, making the sector a material drag on fund performance. If you’re watching your portfolio, the slowdown could bite both lump‑sum and SIP investors, especially those in sector‑focused funds.
Potential Opportunities and Risks
The valuation reset could create buying chances for disciplined investors who see a longer‑term play in India’s deep talent pool and strong export pipeline. Companies may feel pressure to accelerate AI‑related up‑skilling and diversify services, turning a challenge into a growth catalyst. Yet, the short‑term risk remains high if AI concerns linger.
Short‑Term Outlook
With the Nifty IT index down nearly 17 percent over the past month and marquee names off 30 percent from recent peaks, sentiment stays cautious. Market participants will watch for signs that AI worries ease—perhaps clearer regulatory guidance or proof that Indian firms can monetize AI without eroding core margins. Until then, the sector is likely to stay in a recalibration phase.
