FIIs cut stakes in 7 Nifty IT stocks. Then the index surged 16% in July

Foreign institutional investors (FIIs) cut stakes in seven of the 10 Nifty IT stocks during the June quarter, only for the sector to stage a powerful reversal immediately afterward. The Nifty IT index has surged 16% so far in July, raising the possibility that institutional pessimism peaked just as beaten-down valuations, washed-out positioning and improving technicals prepared the ground for a rebound.

Apurva Sheth, head of market perspectives and research at SAMCO Securities, said the firm had flagged the opportunity on July 1, when pessimism around Indian IT was at its peak and the Nifty IT index was at its bottom. Valuations were below historical averages, earnings were reaching new highs, technical indicators were approaching long-term support and positioning was at multiyear lows, he said.

“Our conclusion was simple... be greedy when others are fearful,” Sheth said.


June quarter shareholding data shows that Oracle Financial Services Software (OFFS) emerged as the biggest FII purchase. Foreign investors raised their holding in the company by 1.66 percentage points to 9.70% from 8.04% in the March quarter. The stock has surged 44% in 2026 through July 27, making it the only gainer in the 10-stock pack.


At the other end of the performance spectrum was Wipro. Despite a 32% decline in its shares this year, FIIs increased their stake to 8.85% from 8.32%, a rise of 0.53 percentage point. Tech Mahindra was the only other stock where foreign ownership increased, edging up to 18.66% from 18.59%. Its shares have fallen about 1% this year.

The positioning shows that foreign investors are not yet making a broad call on an IT sector recovery. Instead, they are selectively backing companies at opposite ends of the return spectrum while continuing to reduce exposure across most of the industry.

Also Read | IT stocks are beginning to offer bank FD-like dividend yields. But is that a trap for investors?

What mutual funds did

Domestic mutual funds were even more cautious. They cut stakes in nine of the 10 Nifty IT stocks during the quarter. In Wipro, mutual fund ownership plunged to 1.83% from 4.31%, even as FIIs increased their exposure. Mutual funds also marginally reduced their OFSS holding to 5.42% from 5.53%.

Tech Mahindra was the sole stock where both FIIs and mutual funds raised stakes. Mutual fund ownership increased to 19.14% from 19.06%, while the FII stake rose by 0.07 percentage point. Combined FII and mutual fund ownership increased in only two companies (OFSS and Tech Mahindra) and declined in the remaining eight.

The sharpest foreign investor pullback was in Coforge, where FII ownership dropped 6.35 percentage points to 24.31% from 30.66%. Mutual fund ownership also fell sharply, declining to 30% from 40.48%. Their combined holding consequently dropped to 54.31% from 71.14%.

Also Read | TCS, Infosys crash up to 55%: Why India's largest mutual fund scheme is still buying

Infosys recorded the next biggest FII reduction, with the foreign stake falling to 27.09% from 28.45%, a decline of 1.36 percentage points. Persistent Systems followed with a 1.32 point reduction to 20.79%.

FIIs also lowered their holdings in HCL Technologies to 14.90% from 15.50%, in Tata Consultancy Services (TCS) to 9.07% from 9.66%, and in LTIMindtree to 6.31% from 6.63%. Their Mphasis holding was nearly unchanged, slipping to 19.50% from 19.51%.

The retreat has come amid a sweeping correction in technology shares. Nine of the 10 stocks in the data set have delivered negative returns in 2026. Infosys has fallen 33%, Wipro 32%, LTIMindtree 31% and TCS 28%. HCL Technologies is down 20%, while Mphasis and Persistent Systems have lost about 16% each. Coforge has declined 8%.

Where are IT stocks headed now?

The severe correction, however, is beginning to trigger a tactical reassessment among some foreign investors.

Jefferies said its interactions with more than 50 FII investors suggested sentiment toward India was improving as questions emerged around the artificial intelligence trade. FII flows have turned positive, while economic and corporate data have also delivered positive surprises, it said.

“IT services stocks have borne the brunt due to AI concerns, and rightly so,” Jefferies said. As the AI trade pauses, the brokerage has closed its longstanding underweight position on IT services by adding Infosys and raising its allocation to Coforge. It upgraded the sector to neutral.

The IT sector is down 20% in 2026, while TCS, Infosys, HCL Technologies and Wipro have fallen about 35-50% from their peaks of the past two years. The four companies are trading at price-to-earnings multiples of 13-17 times.

Although IT companies are expected to deliver only low-to-mid single-digit revenue growth over FY26-FY28, Jefferies said a reversal in the AI trade could drive tactical upside after the steep decline. The increasingly muted share-price response to negative sector news also points to the possibility of a tactical bottom, it said.

Wipro’s FII accumulation in June quarter came amid a muted near-term operating outlook reported in July. Its Q1 revenue stood at $2.65 billion, declining 1.2% sequentially and rising 0.9% from a year earlier in constant currency terms. Growth was led by its consumer and technology verticals, while other businesses remained weak. The company guided for sequential constant currency revenue growth of between negative 1.5% and positive 0.5% in the second quarter.

Other institutional investors remain wary that the correction may not have fully captured the structural risks confronting the sector.

“We have maintained very low /almost zero allocation in IT services based on the sector outlook and current AI play. The position has helped relative performance,” said Rahul Baijal, senior fund manager for equities at HDFC AMC.

While IT stocks have corrected sharply, Baijal said AI-linked pricing deflation during contract renewals, slower decision-making and higher competitive intensity would continue to constrain growth, warranting caution on the sector.

Viraj Gandhi, chief executive officer of Samco Mutual Fund, said listed Indian IT services companies were trading at their lowest valuations in a decade, around 30-40% below historical averages. Valuations have fallen to 14-16 times earnings compared with a historical average of 23 times.

But the discount reflects structural challenges. Artificial intelligence is automating routine software work, multinational companies are increasingly hiring engineers directly or shifting work to cheaper alternatives, and private companies now account for 60% of India’s software export market compared with 36% a decade ago.

There are potential offsets. Gandhi said 55% of IT services revenue was expected to be enhanced by emerging technologies, while cloud migration and cybersecurity could create fresh opportunities. Still, sector growth stands at only 1.4% against industry-wide expansion of 12.6%.

“Cheap prices alone don’t justify entry; proof of revenue resilience in an AI-transformed landscape must come first,” Gandhi said.

JM Financial also said Q1 results were largely in line with or better than subdued expectations, but management commentary did not indicate any meaningful improvement in demand. BFSI remained relatively stronger, while headcount additions were muted amid AI-led productivity improvements and limited demand visibility.

“The fundamental demand narrative is largely unchanged—macro uncertainty and AI-led productivity gains continue,” JM Financial said, adding that it remained selective and preferred companies with stronger earnings visibility.

(Data: Ritesh Presswala)