Foreign Outflows From Indian IT Stocks Hit Seven Month High
Foreign investors sold 169.49 billion rupees of Indian IT stocks in February on AI concerns. However, total market inflows hit a 17-month high on trade deals.
Foreign portfolio investors (FPIs) reduced their holdings in the information technology sector of India at a seven-month high during February, fueled by anxieties that artificial intelligence could disrupt traditional business models. Data from the National Securities Depository (NSDL) revealed that FPIs sold IT shares worth 169.49 billion rupees ($1.85 billion) during the month. This aggressive selling led to a 19.5% drop in the IT index, its most severe monthly contraction since the global financial crisis in 2008.
The downturn resulted in a loss of approximately $62.8 billion in market capitalization across the index's ten major firms. This shift follows significant AI-related advancements from companies in the United States, such as Anthropic and Palantir Technologies Inc., which have heightened concerns over automation. The sector had already faced a difficult previous year, with record outflows of 750 billion rupees amid slowing client demand.
"The IT sector is facing multiple headwinds, particularly from the rapid advancement of AI tools," said Piyush Gupta, fund manager at AlphaGrep Investment Management.
Market analysts believe that the path to recovery for Indian IT involves deeper integration with global AI leaders. One notable effort is the strategic partnership between Infosys Limited and Anthropic. Additionally, consistent earnings growth will be necessary to regain the confidence of foreign institutional investors.
While the technology sector struggled, February was not entirely negative for the broader market. FPIs shifted their focus to other industries, resulting in total monthly inflows of 226.15 billion rupees—the highest in 17 months. Sectors including capital goods, financials, metals, and energy saw significant buying interest, supported by positive corporate earnings and new trade frameworks established with the European Union and American authorities.
This momentum has recently been tested by rising geopolitical instability. In early March, FPIs became net sellers of 175.70 billion rupees in shares over just four trading sessions. The escalating conflict between Israel and Iran has pushed the price of Brent Crude Oil higher, dampening global risk appetite and creating new challenges for emerging market equities.
