In early February 2026, Foreign Institutional Investors (FIIs) offloaded ₹10,956 crore worth of Indian IT stocks, marking a significant pullout that has brought their holdings in the sector to a four-year low.
While FIIs have been persistent sellers in the IT space since the start of 2025 (with total exits nearing ₹75,000 crore), the intensity of the February sell-off was driven by a specific shift in global sentiment regarding artificial intelligence.
Why are FIIs Selling IT?
The primary driver for this mass exit is the “AI Disruption” narrative. Global investors are reassessing the traditional Indian IT services model in the face of rapid generative AI breakthroughs.+1
- The “AI Fog”: A high-profile report by JPMorgan, titled “Looking Through the AI Fog,” suggested that the Indian IT sector is entering its third consecutive year of below-par growth.
- Coding Automation Fears: There are growing concerns that advanced AI agents (from firms like Anthropic and Palantir) could significantly reduce the demand for large-scale, human-led coding and maintenance—the bread and butter of Indian software exporters.
- Valuation Premium: Despite the growth concerns, many Indian IT stocks still carry a valuation premium that FIIs are no longer willing to pay, leading them to rotate capital into other sectors.
Impact on Leading Stocks
The heavy selling in the first half of February triggered a sharp correction across the “Big Six” and beyond.
| Stock | Feb 2026 Decline (to date) | FII Holding Status |
| Infosys | -16.5% | Significant exposure cut. |
| TCS | -14% | Heavy selling despite OpenAI partnership. |
| HCL Tech | -14.2% | Broad-based institutional exit. |
| Tech Mahindra | -12% | Continued downward pressure. |
| Nifty IT Index | -14% | Worst-performing sector index in Feb. |
Where is the Money Going?
While FIIs are fleeing IT, they are not exiting the Indian market entirely. Instead, they are rotating funds into sectors perceived to have more “tangible” growth or domestic resilience.
- Capital Goods: FIIs bought ₹8,032 crore in this sector in early February.
- Financial Services: Recorded inflows of ₹6,175 crore.
- Oil & Gas: Attracted ₹4,678 crore in FII capital.
- Power & Construction: Both sectors saw buying exceeding ₹3,000 crore each.
The “DII Cushion”
As has been the trend for the past year, Domestic Institutional Investors (DIIs) and retail SIP flows have acted as a shock absorber. However, even domestic mutual funds saw a notional loss of over ₹50,000 crore in their IT portfolios due to the sheer velocity of the price drops in early February.
