Foreign outflows from Indian IT stocks at 7-month high in February on AI shockwaves

Core Insights - Foreign outflows from India's IT stocks reached a seven-month high in February 2026, driven by concerns over AI disruption impacting earnings [1] - The Nifty IT index experienced a 19.5% decline, marking its worst monthly performance since September 2008, with a total market capitalization loss of approximately $62.8 billion [1] - Despite the downturn in IT stocks, overall foreign portfolio investment (FPI) inflows into Indian markets rose to 226.15 billion rupees ($2.46 billion), the highest in 17 months, indicating a shift in foreign investment focus [1] IT Sector Performance - Foreign portfolio investors sold IT stocks worth 169.49 billion rupees ($1.85 billion) in February, contributing to a significant drop in the IT index [1] - The 10 constituents of the Nifty IT index collectively lost about $68.6 billion in market capitalization during the same month [1] - Analysts suggest that collaborations between Indian IT firms and global AI leaders, such as Infosys and Anthropic, will be essential for restoring FPI interest in the sector [1] Broader Market Trends - While the IT sector faced challenges, sectors like capital goods, financials, metals, and energy saw strong foreign buying, supported by improving corporate earnings [1] - The rebound in foreign investment was also attributed to easing trade tensions following a key trade deal with the European Union and an interim agreement framework with the U.S. [1] - However, the market remains sensitive to geopolitical events, as evidenced by FPIs net selling 175.70 billion rupees of shares in early March due to rising oil prices linked to the U.S.-Israeli conflict [1]