Indian IT sector exposure hits record low as mutual funds reduce holdings

Mutual funds have reduced their exposure to Indian information technology stocks to a record low of 5.3 per cent in September. This represents a significant decline from 9.24 per cent at the end of 2024. The value of IT holdings fell by 25 per cent to Rs 2.97 lakh crore since December 2025.

Key drivers for this reduction include weak demand visibility, particularly from US-based clients who are curbing discretionary technology spending. Additionally, fund managers have expressed concerns regarding the structural impact of artificial intelligence, fearing that automation could disrupt traditional IT services business models.

While capital is being redirected toward sectors like healthcare, industrials, financials, and manufacturing, the shift is characterized as a rotation rather than a total exit. Investors are seeking clearer earnings visibility in domestic-cyclical themes over export-dependent technology. Simultaneously, global investors are showing relative caution toward Indian equities, with some active mutual funds moving to an underweight position in the MSCI Emerging Markets Index.