Tech Taper: Mutual funds are reducing exposure to Indian IT stocks
Mutual funds are steadily reducing their exposure to information technology stocks, taking the sector’s share of equity assets to a record low of 5.3 per cent in September, down from 7.6 per cent at end-2025 and 9.24 per cent at end-2024. The value of their IT holdings fell 25 per cent to Rs 2.97 lakh crore from Rs 3.98 lakh crore in December 2025.
The immediate trigger is weak demand visibility. Global clients—especially in the US—are curbing discretionary technology spending, delaying large deals and squeezing the outsourcing pipeline on which Indian software exporters depend. Accenture’s cut to its revenue-growth guidance reinforced fears that enterprise technology budgets remain cautious.
Artificial intelligence adds a second, more structural concern. Fund managers worry that automation and AI-led tools could disrupt traditional IT-services business models, even as the shift from pilots to production remains gradual. That uncertainty makes it harder to underwrite the sector’s medium-term earnings growth.
The rotation is not a wholesale exit from equities. In May, funds cut IT holdings by Rs 4,810 crore even as total equity exposure rose by Rs 61,404 crore, redirecting capital toward healthcare and industrials. Domestic-cyclical themes—financials, manufacturing and defence—offer clearer India-linked earnings visibility than export-dependent IT.
Some of the fall is also mechanical. IT share prices have corrected sharply, shrinking the sector’s weight in portfolios without every fund actively selling. Profit-booking after earlier rallies and geopolitical uncertainty have added to the de-risking.
For retail investors, the signal is caution rather than capitulation. A lower allocation reflects near-term earnings risk, but select large-cap IT names still attract fund-manager interest, and a rebound in US spending or faster AI monetisation could restore sentiment. The smarter stance is diversification—not abandoning technology, but avoiding an outsized bet on an industry navigating a difficult transition.