FII selling in IT stocks collapsed to just Rs 1,874 crore in March from about Rs 17,000 crore in February, even as total foreign outflows from Indian equities remained elevated at Rs 1.17 lakh crore last month. The abrupt slowdown has sparked debate over whether the sector has finally bottomed out.
“The largest weights in the Nifty IT index now trade at about 17.5x trailing earnings, despite weighted ROICs of over 45%,” said Sahil Kapoor of DSP Mutual Fund. “Nearly 60% of the index by market capitalization is trading below the 33rd percentile of its own historical valuation range.”
Kapoor noted that as of March 2026, leading IT firms were holding cash equal to about 9% of market cap, generating free cash flow yields of over 6%, and “sitting at their most oversold technical readings since the global financial crisis of 2008, and showing record underperformance versus global technology stocks.”
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How cheap are IT stocks now?
“This is a sector with no price froth, little valuation excess, and a weak business cycle already reflected in prices,” Kapoor said, adding that DSP remains overweight on the sector. “The IT sector’s weight in the Nifty 50 is also near an all-time low, which suggests it is under-owned.”
The rebound comes as IT stocks find support from improved valuations and INR-related benefits as the rupee depreciates against the dollar.Market strategists remain divided on whether the worst is truly over.
“The sharp decline in FII selling in IT stocks from February to March does indicate that the intensity of outflows in the sector has cooled, but calling a bottom at this stage may be slightly early,” said Rajesh Singla, CEO & Fund Manager at Alpha AIF.
Singla noted that while total FII turnover remained high in March, “the pressure on IT had eased significantly, indicating that much of the sector’s valuation recovery had already taken place.”
Vikas Gupta, CEO & Strategist at OmniScience Capital, struck a more cautious note. “The recent slowdown in FII selling of IT stocks could be due to relatively lower valuations from an FII expected return perspective. However, it cannot be said with certainty that it has bottomed out,” he said.
Gupta pointed out that IT valuations “still look slightly overvalued given the single digit growth rates being forecasted for the next couple of years,” though he acknowledged that rupee depreciation may be driving expectations of higher INR earnings and growth.
“FIIs remain net sellers in Indian markets reflecting global risk appetite rather than sector-specific concerns,” Singla said. “The decline in sales in the IT market could also be the result of repositioning as investors shift their focus between sectors, rather than exiting IT altogether.”
He added that while the worst of the selling pressure appears over, “the sector is likely to enter a consolidation phase and every dip is a good opportunity to stock up on quality stocks.”
AI uncertainty lingers
All eyes are on TCS, which announces its Q4 results tomorrow, for clues on AI’s impact and demand trends. Analysts believe continued INR depreciation versus the USD will likely aid margin improvement, but the ongoing Middle East conflict and high energy prices are creating uncertainty over end-client demand.
Nomura expects bigger revenue pools for Indian IT service providers to emerge when enterprise AI adoption accelerates, “which we think is likely to gather pace in the next 12-18 months.” The brokerage believes IT services companies will remain relevant in the AI world given tech complexity at clients’ end.
DSP’s Kapoor said his base case remains that these companies will continue to play an important role in enterprise technology. “Even in a bear case of zero revenue growth and some margin compression, the downside appears closer to a de-rating toward 13–14x trailing earnings than a collapse in business quality,” he said. “At current prices, terminal-value risk appears limited.”