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

While retail investors panic and IT stocks bleed billions in market value, India's largest mutual fund scheme has been doubling down by buying more shares of TCS, Infosys and HCL Technologies even as the sector logs some of its steepest losses on record.

Parag Parikh Flexicap Fund, the country's largest mutual fund scheme with an AUM of more than Rs 1.1 lakh crore, increased its holdings in all three IT majors in June, according to its monthly portfolio statement. The fund added 54 lakh shares of Infosys, taking its holding to 4.27 crore shares from 3.73 crore shares in May. It raised its HCL Technologies stake by 31.15 lakh shares to 4.61 crore shares, and added 18.26 lakh shares of TCS, lifting its holding to 1.77 crore shares.

The buying comes even as the three stocks rank among the market's biggest wealth destroyers this year. TCS has crashed 55 percent from its all-time peak of Rs 4,592.25 hit on August 30, 2024, and is down 36 percent year-to-date. Infosys has fallen 47 percent from its all-time high of Rs 2,006.45 on December 13, 2024, down 34 percent so far this year. HCL Technologies is down 43 percent from its peak of Rs 2,012.20 on January 13, 2025, a 30 percent YTD decline.

The AI question

In a recent interview with The Economic Times, Rajeev Thakkar, chief investment officer and director at PPFAS Mutual Fund, had said the fund's conviction rests on cash flows rather than the AI narrative rattling the sector.

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"The impact of AI on the IT sector is still fuzzy. Our preference is for companies that have cash flows today rather than cash flows far into the future. These companies earn in dollars and pay in rupees, while wage inflation is likely to be subdued. For an IT services company, the job is to take specifications from the customer, deliver code that works and maintain it over time. Whether that work is done by humans or partly by machines, the work itself remains the same,” Thakkar had said last month.

The broader debate centers on whether AI-driven disruption will shrink or expand the pie for Indian IT services. The ongoing AI-driven disruption is likely to pressure existing revenue streams, as automation and productivity gains may lead to deal-related revenue deflation. However, management commentary across the sector suggests AI is significantly expanding the addressable market by creating new technology spending opportunities and the absence of large legacy managed-services commitments in AI-based deals could position Indian IT firms to capture new business and drive market-share gains over the long term.

Brokerage Motilal Oswal struck a more cautious note on how much of the sector's revenue is actually at risk. "While ~15–20% of IT services revenue may face AI-led productivity and automation pressures, the impact is likely to be inherently prone to error and risk oversimplifying a far more dynamic transition," the brokerage said, adding that the key differentiator will be the ability of incumbent IT firms to replicate, scale, and commercialize AI-native delivery models faster than peers.

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It expects the sector to head toward a business model reset over the next 24–36 months, with AI capabilities and strategic M&A emerging as critical determinants of market share gains.

Growing dividend yields has also failed to limit the downside in IT stocks. The top five IT companies now offer an average dividend yield of 4.9%, with Wipro at 5.7%, HCL Tech at 5.6%, TCS at 4.9%, Infosys at 4.7% and Tech Mahindra at 3.6%.

Data from DSP Mutual Fund shows that the top four largecap IT names trade at a 36% discount to their 10-year average P/E, yet still throw off a roughly 6.7% free cash flow yield and 5.7% shareholder yield, backed by net-cash balance sheets.

“The sector is no longer expensive. But a valuation bottom needs earnings visibility, not just lower multiples. Currently, earnings growth is absent. Firms and investors do not have the visibility of how earnings will shape up and at what pace. For Midcap IT, the growth challenge is lower,” DSP’s market strategist Sahil Kapoor said.

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