The Numbers That Should Alarm Every Investor
Let's start with the cold, hard data. Foreign portfolio investors sold IT stocks worth ₹10,956 crore in just the first half of February 2026, according to data from the National Securities Depository Ltd — the worst FII selloff in the sector since the second half of July 2025.
What makes this figure truly alarming is the context. During the same period, Dalal Street saw a total net inflow of ₹29,709 crore — meaning IT stocks were the single worst sector even as money was flowing into most other parts of the market.
FIIs have been selling IT stocks consistently since July 2025, and their total holding in IT companies has dropped to ₹4.49 lakh crore — the lowest level in four years. Just one month earlier, in January 2026, this figure stood at ₹5.34 lakh crore. That's over ₹85,000 crore wiped from foreign holdings in under 30 days.
How Far Have IT Stocks Actually Fallen?
The damage across India's top IT companies has been severe and broad-based:
In February 2026, TCS shares declined 15%, Infosys fell 17%, and HCL Technologies dropped 14%. Tech Mahindra plunged 15%. The Nifty IT index — which carries a 10.8% weightage in the benchmark Nifty 50 — tumbled more than 15% during the month.
The losses were led by Coforge, which fell 16%, followed by LTIMindtree, down 15.8%, and Infosys, which slipped 15.5%.
TCS's market capitalisation fell below ₹10 lakh crore for the first time since December 2020. This decline caused TCS to be overtaken by both State Bank of India and ICICI Bank, pushing it down to sixth position among India's most valuable companies.
Over a slightly longer window, the Nifty IT index has fallen approximately 32% from its record high, marking its most significant decline since the Lehman crisis.
The Real Villain: AI Disruption of the Indian IT Model
This crash is not about quarterly earnings misses or a global recession. It's about a far more existential question: Can artificial intelligence make India's IT outsourcing model obsolete?
The fear crystallised in early February 2026. Global investors reacted sharply to fresh developments in AI — particularly new enterprise automation capabilities launched by leading AI companies — which can automate work across coding, legal analysis, data processing, and full workflow delegation. This renewed fears that AI could disrupt areas traditionally dominated by software and IT services companies — segments once seen as long-term beneficiaries of AI adoption.
Analysts believe that rising concerns over AI-led disruption, slower client decision-making, pressure on technology spending, and macroeconomic uncertainties are influencing sentiment. A broad-based global tech sell-off, coupled with fears of a potential AI bubble, have dented confidence.
The most exposed area? Application development and maintenance. Jefferies warned that application services — which account for 40% to 70% of revenues for many Indian IT firms — could be vulnerable to AI-led disruption, adding that consensus growth estimates may not fully reflect these risks.
What Major Brokerages Are Saying
The analyst community is divided but leaning cautious. Here is how the key forecasts break down:
JPMorgan's Four Scenarios
JPMorgan outlined four scenarios for large Indian IT firms. In an extreme bear case, it assumes zero growth indefinitely due to AI disruption, implying potential downside of up to 39% for TCS, Infosys and HCL stocks. In a moderate bear scenario where growth stabilises at low single digits, stocks could see downside ranging from 9% to 22%.
Jefferies
Jefferies struck a cautious tone, warning that "there is more pain ahead for Indian IT," citing AI's potential to erode traditional services revenues and noting that consensus estimates may not fully reflect these risks.
The Bull Case: AI as an Opportunity
Not everyone is bearish. Many experts believe the market reaction is overdone. Indian IT giants are already investing billions in AI platforms — TCS's Ignio, Infosys's Topaz, Wipro's ai360 — and the sector's deep client relationships and domain expertise provide a buffer. The consensus view is that AI will disrupt, but it will also create new opportunities in AI implementation, integration, and management services.
One analyst argued that fears around AI disruption may be overstated, pointing out that Indian IT has faced multiple waves of disruption in the past and has demonstrated resilience and adaptability. He recommended selectively accumulating IT stocks with a 12–15 month perspective.
Where Is FII Money Going Instead? Sector Rotation
The FII exit from IT is not a withdrawal from India entirely. It's a rotation. FIIs are now deploying capital into capital goods, metals, and power sectors. In the first half of February, capital goods attracted ₹8,032 crore and financial services attracted ₹6,175 crore in fresh FII investment.
This shift tells us something important: foreign investors still believe in India's growth story — they're just repositioning away from tech services and toward infrastructure, industrials, and financials.
How Have the Big 4 Been Impacted Individually?
TCS, India's largest IT services exporter, saw FPI holding fall to 10.4% in Q3FY26 from 12.7% in Q3FY25. Infosys witnessed a decline to 30.68% from more than 33% in Q3FY25. HCL Technologies reported FII ownership at 16.2% in Q3FY26, down from 19.4% a year earlier. Tech Mahindra saw a sharper drop in FII holdings across the same period.
These aren't small tweaks — they represent billions of dollars being systematically withdrawn from India's most iconic companies over a sustained period.
Should You Buy, Hold or Sell Indian IT Now?
This is the question every investor is asking. Here are the key factors to weigh:
Reasons to be cautious:
- The AI disruption narrative has structural merit — application services are automatable
- Growth forecasts of 2–3% for FY25–26 look anaemic for a sector that averaged 7–8% for decades
- FII sentiment remains weak and could deteriorate further
- Macro uncertainty around US tech spending and deal cycles persists
Reasons to consider accumulating:
- Stocks have corrected 15–32% from highs — significant valuation comfort has emerged
- Indian IT firms are not passive victims — TCS, Infosys, and HCL are actively building AI capabilities
- AI creates new service categories (implementation, integration, AI-ops) that Indian firms are positioned to win
- India's talent advantage in engineering and cost arbitrage doesn't disappear with AI — it shifts
The bottom line: This looks more like a sentiment-driven correction colliding with a genuine structural question than an outright collapse. For long-term investors with a 2–3 year horizon, selective accumulation in quality names may prove rewarding. For short-term traders, volatility is likely to persist.
Key Takeaways
- FIIs pulled ₹10,956 crore from Indian IT stocks in just the first two weeks of February 2026
- Nifty IT has fallen 15% in February and 32% from its all-time high
- TCS, Infosys, HCL, Tech Mahindra have all declined 14–17% this month
- The trigger is AI disruption fear — particularly around application development and maintenance services
- JPMorgan and Jefferies warn of further downside; some domestic analysts say the selloff is overdone
- FII money is rotating into capital goods, metals, and financial services
- Indian IT giants are not standing still — AI investment in proprietary platforms is underway
Conclusion
The Indian IT sector is at an inflection point unlike any it has faced before. Past disruptions — Y2K, the dot-com bust, cloud computing — were ultimately absorbed and turned into growth opportunities. The AI disruption challenge is real but may not be fatal. The sector's future depends on how quickly TCS, Infosys, Wipro, and HCL can evolve from labour arbitrage providers to AI orchestrators.
Whether this is the beginning of a structural decline or the greatest buying opportunity in a decade for IT stocks — only the next 4–6 quarters will reveal. One thing is certain: the passive, index-hugging approach to IT investing is over.
Are you holding Indian IT stocks? Have you reduced your exposure or are you using this dip to accumulate? Share your strategy in the comments below!
📌 Disclaimer: This blog post is for informational and educational purposes only. It does not constitute financial advice. Please consult a SEBI-registered financial advisor before making investment decisions.
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