IT services stocks have had tough two years, with prices coming under pressure from 2025 and the sell-off extending through the first half of 2026.
Large information technology services companies remain out of favour with a sizeable section of fund managers despite valuations easing to multi-year lows following a sharp correction.
Over one-fourth of focused mutual fund schemes -- a category that gives fund managers greater flexibility in portfolio construction -- had no exposure to largecap IT services companies as of July 2026.
SBI Focused Fund, the largest in the category with over Rs 50,000 crore in assets, had no exposure to even small and midcap IT services firms. Old Bridge Focused Fund also had nil exposure to the sector.
Five other focused funds -- those of ICICI Prudential, Invesco, JM Financial, Motilal Oswal, and Baroda BNP -- had IT services exposure, but it was limited to small and midcap firms.
None of them had any investments in the six largecap IT services firms -- TCS, Infosys, HCLTech, Wipro, LTIMindtree, and Tech Mahindra.
Axis Focused Fund, which had no IT services exposure in June, added Infosys in July.
IT services stocks have had tough two years, with prices coming under pressure from 2025 and the sell-off extending through the first half of 2026.
This was amid weak global tech spending, delayed discretionary deals and concerns over artificial intelligence-led disruption to the traditional outsourcing model.
The Nifty IT index fell 44 per cent during the period, pushing valuations to their lowest levels since Covid at around 19 times trailing price-to-earnings (PE).
Few flexicap funds, like that of Abakkus MF, have negligible exposure to IT services firms.
Sanjay Doshi -- head of investments and research at Abakkus Mutual Fund, attributed the underweight stance to IT services stocks not meeting their growth and valuation criteria.
"We remain cautious on the IT services segment. The sector is facing a challenging environment, with growth impacted by weak discretionary spending, global macroeconomic uncertainty, and the evolving impact of AI-led technological changes," he said.
The MF holding in the IT sector (as a percentage of total equity assets) was down to an eight-year low in April 2026 at 6.7 per cent, according to a Motilal Oswal MF report.
The sector has seen a revival in interest in the past two months, led by foreign institutional inflows.
According to experts, while the stocks have rebounded, most money managers would prefer clarity on the industry's future before investing or raising allocation.
"Even though valuations of Indian IT services firms are down and some may say have bottomed out, the predictability and direction of a turnaround is not clear," said Souvik Biswas, head of research, Bajaj Capital.
"The turnaround strategy also needs greater clarity; initial signs point towards acquisitions and collaboration involving AI capabilities. The cost, profitability and success of this strategy need to be demonstrated."
Feature Presentation: Aslam Hunani/Rediff