Foreign Institutional Investors (FIIs) significantly altered their Indian portfolios, conducting a massive ₹16,949 crore (approximately ₹17,000 crore) sell-off in the IT sector. This exodus comes despite FIIs being net buyers of ₹22,615 crore in the broader Indian equity market during the same month.
The concentration of selling in IT marks a “sectoral rotation” where global funds are moving away from software services toward India’s domestic manufacturing and infrastructure stories.
The “AI Shock” and Revenue Fears
The primary driver for the sell-off is a growing conviction among global analysts that Generative AI poses a structural threat to the traditional “human-led” IT services model.
- The “Anthropic Shock”: Major brokerages, including Jefferies, have warned that rapid advances in AI (specifically tools like Anthropic’s Claude Code) could shrink the “managed services” market—the bread and butter of Indian IT—by automating large-scale coding and support tasks.
- Earnings De-rating: Analysts have slashed target multiples for the sector by as much as 20–32%, suggesting that even after recent price drops, the stocks may still be overvalued relative to their long-term growth potential in an AI-first world.
Stock-Specific Carnage
The heavy selling led to a 20.8% decline in the Nifty IT index during February, making it the worst-performing sector of the year.
| Company | Feb 2026 Price Drop | Key Headwind |
| Tech Mahindra | -23.5% | Highest exposure to telecom-linked software cycles. |
| Persistent Systems | -23.0% | Sharp valuation correction after a long rally. |
| Infosys | -20.4% | FIIs sold heavily following conservative FY27 guidance. |
| HCL Tech | -20.1% | Downgraded to ‘Hold’ by multiple global brokerages. |
| TCS | -18.0% | Massive institutional volume on the sell side. |
Where is the Money Going?
While FIIs dumped IT, they aggressively poured capital into sectors tied to India’s domestic economy and the Union Budget 2026 stimulus.
- Capital Goods: Attracted the highest inflows of ₹12,135 crore, driven by the government’s ₹40,000 crore Bengaluru corridor and robotics initiatives.
- Financial Services: Saw a comeback with ₹8,418 crore in buying, as credit growth remains robust.
- Metals & Mining: Received ₹5,638 crore amid buzz of a new global commodity super-cycle.
The DII Counter-Balance
Despite the ₹17,000 crore dump by foreign funds, the Indian market did not crash entirely. Domestic Institutional Investors (DIIs), fueled by record SIP (Systematic Investment Plan) inflows, absorbed much of the selling pressure. This “tug of war” between FIIs and DIIs has become the defining feature of Dalal Street in 2026, with domestic liquidity now powerful enough to act as a “cushion” against global volatility.
