The rout comes amid a weak demand outlook, the disruptive impact of generative AI and a mixed Q1 scorecard, all of which have triggered a foreign investor exodus. FIIs, who once considered Indian IT their favorite trade, have slashed holdings in TCS from 12.35% in June 2024 to 11.48% in June 2025. Their broader selling has inflicted even deeper pain across the sector with the Nifty IT index plunging 25% so far this year, making it the worst-performing pocket of the market. Out of ₹95,600 crore pulled by FIIs from India in 2025 through July, more than half came from IT stocks alone.
Mutual funds, however, have played contrarian. Domestic institutions raised their TCS stake from 4.25% to 5.13% in one year and July data showed ₹400 crore of fresh MF buying.
Valuations, meanwhile, have been reset sharply. TCS’s trailing PE has halved from 41x to 20x with five-year profit CAGR at 8.5% and stock CAGR at 6%. Long-term data show IT has compounded 12.5% annually over two decades yet underperformed the Nifty in the past three to five years.
Some funds see opportunity in the rubble. “With IT’s weight in the Nifty near decade lows and leading firms still generating ROICs above 40%, the sector may offer relative outperformance if valuations fall further,” DSP Mutual Fund said, calling IT, banks and other large caps a defensive bucket to ride out volatility.
Also Read | FII selling crosses Rs 50,000 crore in IT stocks in 2025. Is tech dead money or just misunderstood?BNP Paribas pointed to dividends as an anchor. TCS’s yield is now 3.7% versus its five-year average of 2.9% with the last five-year peak at 3.6%, the brokerage firm said, adding that margin expansion should resume post-FY26 once the BSNL deal ramps down. BNP has an Outperform rating with a ₹4,400 target price arguing that “resilient fundamentals and attractive valuation make TCS our top pick in the current uncertain macroeconomic environment.”Still, the headlines are not all comforting. TCS’s decision to cut 2% of its workforce has drawn scrutiny. “TCS’s move to cut staff may lead to execution slippages in the near term and higher attrition in the longer run. It reflects a weak demand environment,” Jefferies warned, adding that firms unable to capture AI-led productivity gains may have to resort to layoffs. The brokerage remains selective on IT, preferring Infosys and HCL Tech, which it sees as a stronger alternative to TCS.