This fear has led to valuation derating, with price-to-earnings multiples compressing as analysts lowered both near-term earnings growth estimates and long-term terminal growth assumptions in their discounted cash flow models.

Illustration: Dado Ruvic/Reuters

Fears around artificial intelligence (AI) sparked a global selloff in information technology (IT) stocks, dragging down domestic software shares and prompting the heaviest foreign portfolio investor (FPI) outflows since the second half of July 2025.

IT selloff

FPIs sold IT stocks worth Rs 10,956 crore in the first half of February, according to the data from National Securities Depository Ltd (NSDL).

During the same period, Dalal Street saw a total inflow of Rs 29,709 crore, with IT stocks seeing the worst selloff.

On the bourses, the Nifty IT index has declined 15 per cent so far in February, putting it on track for its worst monthly performance since March 2020.

The losses were led by Coforge, which fell 17.7 per cent, followed by LTIMindtree, down 17 per cent, and Infosys, which slipped 16.5 per cent.

The benchmark Nifty 50 index is up 1.2 per cent so far this month.

Apart from IT stocks, global funds sold fast-moving consumer goods (FMCG) and Healthcare stocks worth over Rs 1,000 crore each, according to NSDL data.

Financial services and capital goods saw the most inflows in the first half of February.

The correction in the tech pack has been driven by mounting concerns among investors over the potential impact of AI on the sector’s growth outlook, with the launch of a new AI tool by startup Anthropic further clouding the sentiment.

The selloff has been driven by concerns that AI poses an existential threat to traditional IT services business models, said Ajay Bodke, an independent market expert.

This fear has led to valuation derating, with price-to-earnings (P/E) multiples compressing as analysts lowered both near-term earnings growth estimates and long-term terminal growth assumptions in their discounted cash flow (DCF) models, he said.

How investors view this sector

Bodke noted that investor positioning in the sector has now turned significantly underweight.

“When everyone is underweight, even a minor shift in perception can trigger a sharp rally,” he said, adding that the first signs of stability or moderation in negative sentiment could lead to a rebound as portfolios scramble to rebuild exposure.

“The correction reflects extreme pessimism driven by concerns around cannibalisation while largely ignoring the potential for new opportunities for Indian IT service providers that have historically succeeded as integrators and enablers in every major technology evolution,” said Sandeep Gogia, sector lead – tech & digital at Equirus Capital.

A recent JP Morgan note said a section of the market is increasingly concerned that Indian IT firms could miss growth targets as AI-led efficiencies prompt clients to reallocate spending.

AI Impact Summit

Meanwhile, as the AI Impact Summit got underway in New Delhi, Indian companies announced major tieups and investment plans aimed at positioning the country for the next phase of AI expansion.

Several cross-border partnerships were signed at the summit, with global technology giants such as Microsoft, OpenAI, and Qualcomm among the participants.

On structural concerns, Bodke argued that fears around AI disruption may be overstated.

Indian IT has faced multiple waves of disruption in the past, yet has demonstrated resilience and adaptability.

He said that Indian IT firms can not only adapt to AI-led changes but also play a meaningful role in implementing and managing such technologies for global enterprises.

From an investment standpoint, Bodke recommended selectively accumulating IT stocks with a 12-15 month perspective, even if price gains are not immediate.