IT stock crash wipes out Rs 1.2 lakh crore for LIC & mutual funds in bloodbath not seen since 2008

With the Nifty IT index crashing 21% in February to record its worst monthly decline since the global financial crisis of 2008, two institutions most exposed to that carnage are also the ones that ordinary Indians trust most with their savings: LIC and domestic mutual funds. Together, they have lost Rs 1.18 lakh crore in notional value this month alone.

Mutual funds, whose January-end holdings in top IT stocks stood at Rs 3,55,600 crore per AMFI data, watched that figure collapse to Rs 2,80,933 crore by February 24, a notional erosion of Rs 74,666 crore in less than four weeks.

LIC, going by its December-quarter shareholding disclosures sourced from Ace Equity, fared no better: its holdings across the top 10 IT stocks fell from Rs 2,11,257 crore to Rs 1,67,939 crore, bleeding Rs 43,318 crore.


Both mutual funds and LIC may have trimmed or even added to these positions this month. For AMCs, the data would be released next month while for the PSU insurer it would be known only in April when companies release their shareholding data.

What is known now is the composition of these bets. Infosys and TCS are the largest holdings within the tech pack for both LIC and mutual funds. As of the December quarter, LIC owned an 11.3% stake in Infosys, 5.3% in TCS, 11.5% in Tech Mahindra, and 9.6% in LTIMindtree — concentrated positions in precisely the stocks that have been hit hardest. Infosys is down 23% this month, TCS 18%, while HCL Tech, Persistent Systems, Tech Mahindra, Coforge, and LTIMindtree have each shed at least 20%.

The Nifty IT index's 21% monthly fall now sits alongside the September 2008 crash as one of the most severe on record.

Questions on IT doomsday everywhere

The proximate cause of the decline is well understood: fears that artificial intelligence will erode the labour-arbitrage model that underpinned India's IT ascent over three decades, compressing demand for the large, people-heavy managed services businesses that generate 22–45% of revenues at major firms. But the more uncomfortable reading, offered by some of India's sharpest market analysts, is that AI is accelerating a deterioration that was already well underway.

Alok Agarwal, Head of Quant and Fund Manager at Alchemy Capital Management, made this case directly. "The weakness predates AI anxiety," he said. "Over the last 3, 5, and 10 years, the IT sector's earnings growth has remained in single digits or barely scraped into double-digits. This isn't a temporary disruption; it's sustained underperformance reflecting genuine business model pressures — commoditisation of services, pricing pressure, and sluggish demand from key Western markets."

His argument is that AI has arrived at the worst possible moment for an industry already running on thin growth. "Generative AI isn't just another technology shift; it threatens to fundamentally alter how code is written, tested, and maintained. The labour arbitrage model that powered Indian IT's rise faces structural obsolescence as AI tools enable clients to accomplish more with fewer engineers."

He warned that even the sector's apparent valuation attractions, high dividend yields, strong free cash flow and elevated payout ratios may be illusory. "These metrics are backward-looking. If growth erodes further, cash generation suffers, and those compelling yields may become unsustainable."

The Nifty IT index, he noted, now trades at an eight-year low relative to the Nifty 500. That discount, he argued, "exists for a reason" and may persist until companies demonstrate credible reinvention strategies.

Downgrade season for IT stocks

Jefferies analyst Akshat Agarwal moved swiftly to recalibrate. Despite the massive fall, he concluded that IT stocks still offer higher downside than upside, a sobering assessment that translated into price target cuts of up to 33%, EPS estimate reductions of 1–4%, and a sweeping set of downgrades: Infosys, HCL Tech, and Mphasis to Hold; TCS, LTIMindtree, and Hexaware to Underperform. Only Coforge, Sagility, and IKS survived as preferred picks.

The analytical logic behind the downgrades is worth understanding carefully. Agarwal argued that AI will not simply shrink IT revenues at the margin but will restructure the entire business mix, shifting client engagements from managed services toward advisory and implementation work.

This shift carries a double penalty: managed services revenue deflates as AI automates the work, while advisory and implementation revenues are inherently more cyclical and require a fundamentally different talent and operating model. "Such changes in operating models are not easy to execute," he wrote, "and investors must factor in this risk in PE multiples."

Dalal Street’s top value investor and ICICI Prudential AMC’s CIO S Naren struck a tone that was neither dismissive of the risks nor resigned to permanent impairment. "The sector is in a flux along with heightened fear. If the growth risks do not materialise, there is scope for meaningful returns. However, clarity on long-term growth is essential before becoming decisively positive."

His warning to investors hunting for value in the wreckage was pointed: "In a sector which is facing disruption, cheap valuation alone will not suffice. What matters most is the confidence that disruption will not permanently impair industry growth. Without that clarity, cheap valuations may not mean much."

That tension between beaten-down prices and uncertain fundamentals is precisely what makes the current moment so difficult to navigate for institutions like LIC and mutual funds, which cannot simply exit their large, long-held positions without moving markets further against themselves.

The more bullish counterargument comes from HSBC, which dismissed the Kodak-moment framing that bears have been deploying. "We believe that the far majority of enterprise software will not be threatened by AI, but rather AI will be domesticated within the application stack via agents and will create tremendous value in doing so," the bank said in a note. In this reading, Indian IT firms are not the next Kodak but integrators through whom AI enters the enterprise, and that role could prove more durable and more lucrative than the managed services model it replaces.

(Data: Ritesh Presswala)