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

• The 10 constituents of India's Nifty IT index lost approximately $62.8 billion in market capitalization during February 2026
• Despite IT sector weakness, overall FPI inflows into Indian markets reached a 17-month high of $2.47 billion in February, driven by trade deals with the EU and U.S. framework agreement
• Foreign investors rotated into sectors like capital goods, financials, metals, and energy, though this recovery remains fragile as evidenced by $1.92 billion in net sales in early March due to U.S.-Iran tensions

Summary: Foreign Outflows from Indian IT Stocks Hit 7-Month High

Key Developments:

Foreign portfolio investors (FPIs) withdrew ₹169.49 billion ($1.85 billion) from Indian IT stocks in February 2026, the highest outflow in seven months. This triggered a 19.5% decline in India's Nifty IT index—its worst monthly performance since September 2008, spanning over 17 years.

Market Impact:

The 10 constituents of the IT index collectively lost approximately $62.8 billion in market capitalization during February. This sell-off was driven by concerns that AI-led disruption could compress earnings, particularly following major AI automation announcements from U.S. firms including Anthropic and Palantir.

Sector Context:

In 2025, FPIs had already offloaded ₹750 billion ($8.18 billion) in IT stocks due to weaker earnings and softer client spending. Analysts indicate that strategic partnerships between Indian IT firms and global AI leaders—such as the collaboration between Infosys and Anthropic—along with earnings improvements, will be critical to restoring investor confidence.

Broader Market Picture:

Despite IT sector weakness, overall FPI inflows reached ₹226.15 billion in February, the highest in 17 months since September 2024. This was fueled by trade agreements with the European Union and an interim framework with the U.S. Sectors including capital goods, financials, metals, and energy attracted strong foreign buying.

Near-Term Risks:

Market fragility remains evident. FPIs net sold ₹175.70 billion in early March 2026 amid escalating U.S.-Israeli conflict with Iran, rising oil prices, and reduced global risk appetite. Analysts warn the FPI recovery will be gradual and sensitive to geopolitical developments.