AI fears drive $1.85B foreign outflow from Indian IT stocks in February

Summary

Foreign investors sharply reduced exposure to Indian IT stocks in February, with outflows reaching ₹169.49 billion ($1.85 billion), a seven-month high. The sell-off — driven by concerns over AI disruption — triggered the sector’s steepest monthly decline since September 2008, even as investors rotated into domestic cyclical sectors.

MUMBAI, March 6, 2026 — Foreign outflows from India’s information technology sector climbed to a seven-month high in February as global investors reassessed growth prospects amid rapid advances in artificial intelligence.

Data from the National Securities Depository showed Foreign Portfolio Investors (FPIs) sold IT shares worth ₹169.49 billion ($1.85 billion) during the month.

The sell-off sent the Nifty IT index down 19.5%, marking its largest monthly decline since September 2008.

AI concerns weigh on sentiment

Analysts say growing concerns about AI-driven automation and pricing pressure on outsourcing models have weighed on investor sentiment toward traditional IT services firms.

The sector has faced multiple headwinds over the past year, including slowing discretionary spending by global clients and rising competition from AI-enabled service providers.

Sector rotation cushions broader market

Despite the steep fall in IT stocks, investors shifted allocations toward domestic cyclical sectors including capital goods, financials, power and metals.

The rotation helped cushion broader market losses during February, even as foreign investors remained net sellers overall.

March volatility returns

Market sentiment weakened further in early March, with FPIs turning net sellers across sectors amid rising geopolitical tensions and higher oil prices.

In the first four trading sessions of March, FPIs sold shares worth ₹175.7 billion.

Why This Matters

• AI reshaping outsourcing: The sell-off reflects growing concern that automation could pressure margins for traditional IT services firms.
• Foreign flow sensitivity: Indian equities remain highly responsive to global capital rotation and macro sentiment shifts.
• Sector divergence: While IT struggled, domestic cyclical sectors attracted capital amid infrastructure-driven growth expectations.
• Near-term volatility: Rising oil prices and geopolitical risks could keep markets unstable in coming months.

FAQs

Q1. Why did foreign investors sell Indian IT stocks?

Concerns about AI-led disruption, weaker client spending trends and valuation pressures contributed to the February outflows.

Q2. Was this the largest outflow on record?

No. February marked a seven-month high for IT-sector outflows, not an all-time record.

Q3. Which sectors benefited from the shift?

Investors rotated toward capital goods, financials, power and metals stocks.

Q4. How significant was the decline in IT stocks?

The Nifty IT index fell 19.5% in February — its steepest monthly drop since September 2008.

Q5. What could reverse the trend?

Improved earnings visibility, successful AI integration strategies and stabilizing global demand could help restore investor confidence.