Foreign investors dump Rs 16,949-crore IT stocks in February—Why the sector is still under pressure

India’s information technology stocks have been under pressure after foreign investors sharply reduced their exposure to the sector in February. Concerns around the rapid rise of artificial intelligence tools and their possible impact on outsourcing demand have weighed on sentiment.

According to data from the National Securities Depository Limited (NSDL), foreign portfolio investors sold IT shares worth around Rs 16,949 crore during February. The heavy selling dragged the Nifty IT index down by nearly 19.5 per cent during the month, making it the sector’s weakest performance since September 2008, when global markets were shaken by the financial crisis.

Massive wealth erosion in February

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The correction also wiped out a significant amount of investor wealth. The ten companies that make up the Nifty IT index together lost close to $62.8 billion in market capitalisation during February as stock prices corrected sharply.

One of the biggest concerns among investors is the rapid pace at which artificial intelligence is evolving. Global technology firms such as Anthropic and Palantir Technologies recently introduced new AI automation tools, sparking fears that many routine services traditionally handled by IT outsourcing companies could eventually be automated.

Market participants say the sector is dealing with several challenges at once. Apart from the AI disruption narrative, technology companies are also facing slower spending by global clients and pressure on earnings growth.

AI partnerships seen as a long-term opportunity

Even though the current environment looks uncertain, analysts believe Indian IT companies may adapt by working closely with global AI firms and developing new technology-led solutions.

For example, Infosys has entered into a strategic partnership with Anthropic to integrate advanced artificial intelligence capabilities into enterprise solutions. Such collaborations could help technology companies shift towards higher-value services rather than relying only on traditional outsourcing contracts.

Analysts say stronger earnings visibility and successful adoption of AI-led services will be important for rebuilding investor confidence in the sector.

IT stocks end the day largely steady

After a volatile session on Friday, the Nifty IT index ended almost unchanged. The index closed at 30,676.55, up 11.60 points or 0.04 per cent from the previous session.

Stock-specific moves were mixed across the sector.

Persistent Systems was among the top gainers and ended the day at Rs 4,785, rising Rs 143.30 or 3.09 per cent.

Coforge also finished higher, closing at Rs 1,165, up Rs 12.30 or 1.07 per cent.

However, Mphasis ended slightly lower. The stock closed at Rs 2,224.90, down Rs 6.70 or 0.30 per cent for the day.

Foreign investors move money elsewhere

Despite the heavy selling in IT shares, foreign investors did not completely step away from Indian equities. In fact, they channelled money into other sectors of the market. Overall, FPIs brought in about Rs 22,615 crore into Indian equities during February — the highest monthly inflow seen in nearly 17 months.

The improved foreign appetite was supported by better corporate earnings and easing global trade tensions after India reached trade agreements with major global partners.

Fresh global tensions weigh on sentiment

However, market conditions turned uncertain again in early March. Foreign investors sold shares worth about Rs 17,570 crore in just four trading sessions as geopolitical tensions in West Asia intensified.

The conflict involving the United States, Israel and Iran pushed crude oil prices higher and dampened global risk appetite.