By Bharath Rajeswaran
March 6 (Reuters) - Foreign outflows from India's information technology stocks hit a seven-month high in February, on worries that artificial intelligence-led disruption could squeeze earnings.
Foreign portfolio investors sold IT stocks worth 169.49 billion rupees ($1.85 billion) for the month. That triggered a 19.5% drop in the IT index .NIFTYIT, its worst monthly performance since September 2008, when the global financial crisis upended equity markets, National Securities Depository (NSDL) data showed on Friday.
The 10 constituents of the index lost about $62.8 billion in market capitalisation in February after U.S. firms such as Anthropic and Palantir unveiled key updates in AI automation. Last year, FPIs offloaded a record 750 billion rupees ($8.18 billion) of IT stocks on weaker earnings and softer client spending.
"The IT sector is facing multiple headwinds, particularly from the rapid advancement of AI tools," said Piyush Gupta, fund manager at AlphaGrep Investment Management.
Constructive collaborations between Indian IT firms and global AI leaders, such as the strategic partnership between Infosys and Anthropic, and improvement in earnings in the sector will be crucial to restore FPI interest in the sector, according to three analysts.
Yet, February was not a one-way risk-off story. FPIs rotated aggressively into other pockets of the market, lifting overall inflows to 226.15 billion rupees, the highest in 17 months since September 2024.
The rebound in broader foreign appetite was fueled by improving corporate earnings and easing trade tensions after India sealed a key trade deal with the European Union and an interim framework for an agreement with the U.S.
Sectors such as capital goods, financials, metals, and energy drew strong foreign buying, supported by improving earnings despite a one-time hit from new labour codes.
AlphaGrep's Gupta said that while sturdier earnings and trade progress help the long game, the FPI comeback is likely to be gradual, highly sensitive to geopolitics and external shocks.
That fragility is already showing.
FPIs net sold 175.70 billion rupees of shares in just four sessions in March as the escalating U.S.-Israeli war with Iran spiked oil prices and squeezed global risk appetite.
($1 = 91.6750 indian rupees)
FPI outflows from Indian IT stocks climb to 7-month high in February 2026 https://reut.rs/4b9tLbh
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India's Nifty IT firms lose $62.8 billion in market capitalisation in February https://reut.rs/3ZViTZn
FPI inflows in Indian markets rises to a 17-month high in February 2026 https://reut.rs/4bdlYsZ
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(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Harikrishnan Nair)
((bharath.rajeswaran@thomsonreuters.com; +91 9769003463;))