Indian Mutual Funds Reduce IT Sector Exposure to Record Lows
Concerns over artificial intelligence disruption and declining client spending drive significant portfolio reallocations.
1Record Low Sector Allocation
Indian mutual funds have reduced their investment in Information Technology stocks to a record low of 5.3% of total equity assets under management as of September. This represents a sharp decline from the 7.6% recorded at the end of 2025 and a significant drop from the 9.24% share held at the end of 2024.
2Drivers of Portfolio Shifts
The primary catalyst for this divestment trend is growing apprehension regarding artificial intelligence disruption across the tech landscape. Fund managers are also responding to tangible signs of reduced client spending, which threatens the long-term revenue growth prospects of major IT firms that have historically anchored many large-cap equity portfolios in the Indian market.
3Impact on Major Players
The sector's reduced weight in equity assets has directly impacted major industry leaders such as Infosys and TCS. While the broader Nifty IT index experienced substantial losses during this period, the market dynamics remain complex as some fund managers have opted to increase their specific positions in these companies despite the overall negative sentiment.
4Market Sentiment and Recovery
Despite the significant reduction in holdings, the Nifty IT index has recently experienced a rebound, which has slightly improved investor sentiment. This volatility highlights the ongoing struggle for fund managers to balance long-term structural concerns about AI-driven disruption with the short-term recovery potential observed in the performance of major technology stocks.
5Strategic Asset Reallocation
The shift away from IT reflects a broader strategic rebalancing within Indian mutual fund portfolios. As managers move capital out of the tech sector, they are likely rotating funds into industries perceived as more resilient to current macroeconomic pressures or those less susceptible to the immediate operational threats posed by rapid artificial intelligence advancements.
6Sectoral Weighting Trends
The consistent downward trajectory in IT holdings over the past two years indicates a fundamental change in how institutional investors view the sector. Moving from over 9% in 2024 to nearly half that level by late 2026 suggests that the industry is no longer viewed as the primary growth engine for equity portfolios.
7Institutional Risk Management
Mutual funds are actively managing their exposure to mitigate risks associated with client spending volatility. By lowering their concentration in IT, these institutions are attempting to protect their assets under management from potential earnings misses. This defensive posture is a direct response to the uncertainty surrounding the long-term impact of AI on services.
8Future Investment Outlook
Investors should monitor whether this record-low allocation marks a structural bottom for the IT sector or if further divestment is imminent. The divergence in fund manager behavior, where some continue to accumulate select stocks, suggests that stock-picking will remain critical as the industry navigates the disruptive challenges posed by new technological paradigms.
Original article: Economic Times — Indian Mutual Funds Reduce IT Sector Exposure to Record Lows