Indian equity markets witnessed significant sectoral shifts in February 2026 as foreign institutional investors (FIIs) sharply reduced exposure to information technology stocks. Overseas investors sold nearly ₹17,000 crore worth of IT shares during the month, according to data from the National Securities Depository Limited. The selling pressure came amid rising concerns about the potential disruption from rapidly advancing generative artificial intelligence technologies.

Foreign Investors Reduce Exposure to IT Sector
Foreign institutional investors (FIIs) significantly reduced their exposure to Indian information technology stocks in February 2026, triggering a sharp correction across the sector. Data from the National Securities Depository Limited shows overseas investors sold nearly ₹17,000 crore worth of IT shares during the month.

The selling occurred in two distinct phases. In the first half of February, FIIs offloaded shares worth approximately ₹11,000 crore. This was followed by additional selling of around ₹6,000 crore in the second half of the month.

AI Disruption Concerns Weigh on Sentiment

Investor sentiment toward the IT sector weakened largely due to rising concerns about the impact of generative artificial intelligence.

Rapid advances in AI technologies have raised questions about the future demand for large-scale human-driven coding, application maintenance, and IT support services. These services currently form a significant portion of the revenue base for India’s major software exporters.

As global corporations increasingly experiment with automation and AI-assisted development tools, investors have become cautious about the long-term growth trajectory of traditional IT outsourcing models. This uncertainty contributed to the sharp correction in technology stocks and prompted FIIs to reduce exposure.

FII Holdings in IT Fall to Multi-Year Lows

Following the February selloff, the total value of FII investments in IT stocks dropped to approximately ₹4.18 lakh crore by the end of the month, according to data from the National Securities Depository Limited.

Foreign investors have been gradually trimming their IT holdings since early 2025. Over this period, cumulative selling has reached nearly ₹74,698 crore.

At the beginning of 2025, FII investments in the IT sector had reached a record value of around ₹7.3 lakh crore. Since then, continued selling along with declining share prices has reduced the value of these investments by roughly 42.8 percent.

More detailed information about individual stock stake reductions is expected to emerge in the March-quarter shareholding disclosures.

Major IT Stocks Record Sharp Corrections

Several leading technology companies witnessed significant declines in their share prices during February.

Shares of Infosys fell about -13.03% past month, while Tata Consultancy Services declined roughly -12.76% past month data as on March 06, 2026.

Similarly, HCL Technologies dropped around -14.36% past month, and Tech Mahindra recorded a sharp fall of about -17.61%past month.

Capital Rotation Toward Other Sectors

While IT stocks faced heavy selling, foreign investors redirected capital toward several other sectors.

Capital goods and automobile companies attracted notable inflows during February. FIIs invested about ₹4,103 crore in capital goods stocks and around ₹3,075 crore in automobile companies during the second half of the month.

Construction and metal stocks also recorded strong inflows of approximately ₹2,742 crore and ₹2,359 crore respectively. Financial services and power sectors received additional investments of about ₹2,243 crore and ₹1,234 crore.

At the same time, FIIs reduced exposure in sectors such as consumer services, telecom, FMCG, chemicals, and consumer durables.

Conclusion
The sharp foreign institutional investor outflows from Indian IT stocks in February highlight growing uncertainty around the sector’s long-term growth outlook. Rapid advances in generative AI have prompted investors to reassess the sustainability of traditional outsourcing models that rely heavily on large workforces. As global companies increasingly adopt automation and AI-driven development tools, concerns about future demand for conventional IT services have intensified. While the sector remains a key pillar of India’s export economy, near-term investor sentiment may stay cautious until companies demonstrate how they plan to adapt to the evolving technology landscape.