India’s IT sector is in the midst of a sharp selloff, with foreign institutional investors (FIIs) offloading marquee names like TCS and Infosys. The Nifty IT index has plunged 26% from its peak. TCS, Infosys, HCL Tech, and even midcap players like Persistent and Mphasis witnessed FII exits in the March quarter, raising pressing questions: is this peak pessimism or the beginning of a deeper correction?
FII stake in Infosys declined to 32.89% in Q4, down from 33.3% in Q3. TCS saw a steeper drop, with FII ownership falling from 12.68% to 12.04%. HCL Tech also saw a reduction—from 19.38% to 19.15%. Other large- and mid-cap IT names like LTIMindtree, Persistent, and Mphasis reported similar FII selling, suggesting the retreat is broad-based and conviction-driven.
Only Wipro stood out as an exception—FII stake rose from 7.81% to 8.35%, despite the stock still trading 28% below its peak. The broader Nifty IT index’s 26% correction has spared neither industry titans nor emerging challengers.
The domestic story, however, is more nuanced. Mutual funds increased their stakes across most IT names, including TCS, Infosys, Tech Mahindra, and Persistent. The only notable exits were from LTIMindtree and Wipro.
The sell-off extended into the first half of April, with FIIs pulling out another Rs 13,828 crore from Indian IT stocks.
Also read | Bajaj Finance crowned new Nifty king of 2025 with highest 36% return. What’s next?
What’s spooking FIIs out of IT stocks?
"FIIs appear to be rotating into high-conviction, emerging themes—such as capital goods, pharma CDMO/CMO, and financials—where India’s growth story is visibly accelerating," said Bhavik Joshi, Research Analyst at Invasset PMS, in a conversation with ET Markets.
He pointed to the weakening US dollar as a critical factor. With a significant share of Indian IT companies’ revenue coming from BFSI clients in North America, a softer dollar hurts rupee realizations and compresses margins. Add to that a stressed global BFSI sector, delayed budgets, slower deal conversions, and pricing pressure on legacy services—and it’s clear why investors are jittery.
“The large-cap IT space is no longer the defensive play it used to be,” Joshi said. “Growth visibility is cloudy, and that’s evident in the muted management commentary across Q4 earnings.”
India’s top IT firms—TCS, Infosys, and Wipro—posted underwhelming March quarter and FY25 results, reflecting caution amid global uncertainties and weak trade sentiment. TCS reported a 1.7% decline in Q4 net profit to Rs 12,224 crore, while Infosys saw an 11.7% drop to Rs 7,033 crore. TCS expects FY26 to be better, though it flagged challenges like delays in discretionary spending and project ramp-downs. Infosys projected 0–3% revenue growth for FY26—its weakest guidance in a decade outside the pandemic. Wipro forecasted up to a 3.5% sequential revenue decline for Q1FY26, citing client caution, though it remains committed to stable and profitable growth.
Earnings expectations have also been revised downward. Analysts have cut FY26 sector earnings by 6–8%, while FY27 estimates remain in the 6–8% growth range—but only after an absolute downward revision.
Valuations, too, are less reassuring than they appear.
“Most top-tier IT names now trade at a cash flow yield of 5–6%, with forward multiples ranging from 17x for Wipro to 22x for TCS,” said Nirav Sheth, CEO of Institutional Equities at Emkay Global. “While these levels may seem attractive, they are anchored in growth expectations. Medium-term dollar revenue growth has reverted to pre-pandemic norms of 6–8%, with rupee revenue and free cash flow growth trailing slightly.”
Have IT stocks bottomed out?
“There has been a decent correction, and valuations are now closer to five-year averages. So some bottom formation may be underway,” said Pawan Bharaddia, Co-founder of Equitree Capital. “However, given the weak growth outlook, a significant rally is unlikely. We expect consolidation around current levels unless there’s clear visibility on growth.”
Krishnan VR, Chief of the Quantitative Research team at Marcellus, noted that concerns about reduced discretionary client spending—driven by tariff-related inflation and potential U.S. growth impact—are already partly priced in.
“If the U.S. avoids a tariff-induced slowdown in the second half of the year, there could be a case for a recovery in IT stocks,” he said.
Until Indian IT delivers on growth visibility, margin stability, and deal momentum, FIIs may continue to stay on the sidelines.
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)
FII stake in Infosys declined to 32.89% in Q4, down from 33.3% in Q3. TCS saw a steeper drop, with FII ownership falling from 12.68% to 12.04%. HCL Tech also saw a reduction—from 19.38% to 19.15%. Other large- and mid-cap IT names like LTIMindtree, Persistent, and Mphasis reported similar FII selling, suggesting the retreat is broad-based and conviction-driven.
Only Wipro stood out as an exception—FII stake rose from 7.81% to 8.35%, despite the stock still trading 28% below its peak. The broader Nifty IT index’s 26% correction has spared neither industry titans nor emerging challengers.
The domestic story, however, is more nuanced. Mutual funds increased their stakes across most IT names, including TCS, Infosys, Tech Mahindra, and Persistent. The only notable exits were from LTIMindtree and Wipro.
The sell-off extended into the first half of April, with FIIs pulling out another Rs 13,828 crore from Indian IT stocks.
Also read | Bajaj Finance crowned new Nifty king of 2025 with highest 36% return. What’s next?
What’s spooking FIIs out of IT stocks?
"FIIs appear to be rotating into high-conviction, emerging themes—such as capital goods, pharma CDMO/CMO, and financials—where India’s growth story is visibly accelerating," said Bhavik Joshi, Research Analyst at Invasset PMS, in a conversation with ET Markets.
He pointed to the weakening US dollar as a critical factor. With a significant share of Indian IT companies’ revenue coming from BFSI clients in North America, a softer dollar hurts rupee realizations and compresses margins. Add to that a stressed global BFSI sector, delayed budgets, slower deal conversions, and pricing pressure on legacy services—and it’s clear why investors are jittery.
“The large-cap IT space is no longer the defensive play it used to be,” Joshi said. “Growth visibility is cloudy, and that’s evident in the muted management commentary across Q4 earnings.”
India’s top IT firms—TCS, Infosys, and Wipro—posted underwhelming March quarter and FY25 results, reflecting caution amid global uncertainties and weak trade sentiment. TCS reported a 1.7% decline in Q4 net profit to Rs 12,224 crore, while Infosys saw an 11.7% drop to Rs 7,033 crore. TCS expects FY26 to be better, though it flagged challenges like delays in discretionary spending and project ramp-downs. Infosys projected 0–3% revenue growth for FY26—its weakest guidance in a decade outside the pandemic. Wipro forecasted up to a 3.5% sequential revenue decline for Q1FY26, citing client caution, though it remains committed to stable and profitable growth.
Earnings expectations have also been revised downward. Analysts have cut FY26 sector earnings by 6–8%, while FY27 estimates remain in the 6–8% growth range—but only after an absolute downward revision.
Valuations, too, are less reassuring than they appear.
“Most top-tier IT names now trade at a cash flow yield of 5–6%, with forward multiples ranging from 17x for Wipro to 22x for TCS,” said Nirav Sheth, CEO of Institutional Equities at Emkay Global. “While these levels may seem attractive, they are anchored in growth expectations. Medium-term dollar revenue growth has reverted to pre-pandemic norms of 6–8%, with rupee revenue and free cash flow growth trailing slightly.”
Have IT stocks bottomed out?
“There has been a decent correction, and valuations are now closer to five-year averages. So some bottom formation may be underway,” said Pawan Bharaddia, Co-founder of Equitree Capital. “However, given the weak growth outlook, a significant rally is unlikely. We expect consolidation around current levels unless there’s clear visibility on growth.”
Krishnan VR, Chief of the Quantitative Research team at Marcellus, noted that concerns about reduced discretionary client spending—driven by tariff-related inflation and potential U.S. growth impact—are already partly priced in.
“If the U.S. avoids a tariff-induced slowdown in the second half of the year, there could be a case for a recovery in IT stocks,” he said.
Until Indian IT delivers on growth visibility, margin stability, and deal momentum, FIIs may continue to stay on the sidelines.
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)
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