In Persistent Systems, FIIs cut their stake by 2.95 percentage points to 21.24%, while mutual funds raised theirs by 1.38 points to 23.71%. Tech Mahindra saw FII holdings drop 2.68 points to 20.60%, even as mutual fund ownership rose 1.05 points to 17.56%.
Coforge witnessed the sharpest FII exit, with holdings declining 2.79 percentage points to 37.42%, while mutual funds lifted their stake by nearly a full point to 37.90% during the quarter ended June 2025.
In heavyweight Infosys, FIIs cut holdings by 1.84 percentage points to 30.08%, while mutual funds increased exposure by 1.87 points to 22.73% — a near mirror-image move. TCS, India’s largest IT services firm, saw FII stakes fall 1.15 points to 10.33%, while mutual funds raised theirs by 0.46 points to 5.59%.
HCL Technologies witnessed a 1.92 percentage point drop in FII holdings to 16.64% — the second-largest reduction after Coforge — while mutual funds added 0.76 points to reach 9.20%. Even in Mphasis, where the changes were smaller, the pattern persisted: FIIs reduced stakes by 0.47 points to 18.52%, while mutual funds inched up 0.13 points to 24.41%.The only exception to the mutual fund buying trend was LTIMindtree, where domestic funds trimmed their stake by 0.27 percentage points to 5.11%, while FIIs reduced holdings by a smaller 0.22 points to 6.40%. Wipro saw marginal FII buying, with holdings rising 0.29 points to 8.45%, though mutual funds also added 0.06 points to 4.35%. Oracle Financial Services Software was the sole stock where FIIs increased exposure, up 0.11 points to 8.66%, with mutual funds simultaneously raising their stake by 0.12 points to 5.69%.The mutual fund buying spree comes amid a brutal selloff. So far this calendar year, HCL Tech, Infosys, TCS, and Wipro are down at least 20%, with IT bellwether TCS plunging 33% from its peak. Most peers remain deep in bear-market territory.
Also Read | Sensex zooms over 4,000 points in Diwali month: Is this the beginning of new bull run?
FII selling in IT stocks is being driven by weak earnings, a global demand slowdown, and AI-led disruption threatening the sector’s traditional business model.
Jefferies warns that “AI may drive 20% revenue deflation in IT services over CY25–30, with higher impact on high-margin revenue streams.” The brokerage expects this to restrict growth in its coverage universe to just 3.8% CAGR and keep margins under pressure.
The research house highlights three key risks: clients may delay IT spending amid fears that rapid AI advancements will make current investments obsolete; AI-driven productivity gains could erode up to 20% of existing revenues over FY25–30; and clients are yet to fully realise returns on elevated tech spending, which averaged $280 billion between 2021 and 2024.
Goldman Sachs’ Manish Adukia notes that while there are early signs of demand stabilisation, “visibility into CY26 remains poor, and company commentary suggests AI-related productivity pass-throughs may be becoming more mainstream, which may keep multiples depressed.”
All six IT services companies under Goldman’s coverage reported results that were largely in line or marginally better, with sequential revenue growth of 1.5% for the sector. The brokerage expects services revenue to rise 1.7% quarter-on-quarter in December 2025, but full-year FY26 growth is projected at just 1.1% year-on-year.
Yet, domestic fund managers see opportunity in the carnage. Parth Shah, Product Manager and Market Strategist at DSP Mutual Fund, argues: “While Indian IT stocks may not be ‘cheap’ in absolute terms, they appear reasonably valued compared to the broader market. This makes them a relative opportunity today — and, with any further correction, potentially an absolute value play.”
“Despite near-term challenges, the sector continues to demonstrate earnings resilience. In many companies, earnings growth has exceeded total shareholder returns over the past three years — a clear sign that fundamentals remain solid even as valuations have de-rated,” Shah added.
He also points to dividend yield as an additional cushion: “The Nifty IT Index’s dividend yield stands at 3.2%, more than double the Nifty 50’s 1.3%, offering investors meaningful downside protection at a time when margins of safety are limited elsewhere in the market.”
“If the Nifty IT Index were to correct another 10–15%, it could present an absolute bargain. Even now, it remains a relative value play — a steady, income-generating way to add equity exposure in a market where much else looks fully priced,” Shah said.
Despite persistent challenges, Jefferies notes that among large caps, Infosys and HCL Tech face lower risk of revenue deflation — supporting mutual funds’ selective approach to the sector.
“In a landscape crowded with momentum trades, Indian IT may quietly be setting up to surprise on the upside once again,” Shah concluded.
(Data: Ritesh Presswala)