Heightened global volatility amid geopolitical tensions has coincided with a marked withdrawal by foreign investors from Indian information technology equities. Fast-evolving developments in artificial intelligence have intensified concerns over sector earnings, leading to the steepest monthly selloff in IT shares since the 2008 financial crisis.
In February, foreign portfolio investors offloaded Indian IT stocks worth 169.49 billion rupees ($1.85 billion), marking the largest monthly outflow for the sector in seven months, according to data from the National Securities Depository. This withdrawal prompted the IT index to decline by 19.5% during the month.
The ten companies comprising the index experienced a collective erosion of approximately $62.8 billion in market value after U.S.-based technology companies, such as Anthropic and Palantir, introduced significant advancements in AI-powered automation.
For context, foreign investors had previously withdrawn a record 750 billion rupees ($8.18 billion) from Indian IT stocks in the prior year, prompted by weaker sector profits and subdued client demand.
Piyush Gupta, fund manager at AlphaGrep Investment Management, noted that the sector is contending with serious challenges amid rapid AI advancements, while renewed foreign interest could hinge on Indian IT companies forming partnerships with leading AI players, according to analysts.
Meanwhile, February also saw significant foreign buying in other sectors, including capital goods, financials, metals, and energy, which resulted in net portfolio inflows of 226.15 billion rupees—the highest monthly total since September 2024.
Broad-based optimism was supported by stronger corporate results and progress on trade agreements, including India’s deal with the European Union and an interim arrangement with the United States.
However, as stronger earnings and policy advances support continued investment, foreign flows remain vulnerable to global shocks, as per Gupta.
This risk appears to have materialized early in March, with foreign portfolio investors selling 175.70 billion rupees’ worth of Indian shares within four days, following the intensifying conflict between the U.S., Israel, and Iran, which dampened broader risk appetite.
