Foreign portfolio investors sharply reduced exposure to India’s technology sector in February as concerns grew that rapid advances in artificial intelligence could disrupt traditional outsourcing business models.

Data from National Securities Depository Limited showed overseas investors sold roughly ₹169.49 billion (about $1.85 billion) worth of Indian IT shares during the month.

The selling pressure triggered a steep 19.5% decline in the sector’s benchmark Nifty IT Index, marking its worst monthly performance since September 2008 during the global financial crisis.

Market Value Erodes Across IT Sector

The selloff erased significant market value across India’s technology companies.

The ten constituents of the Nifty IT index collectively lost about $62.8 billion in market capitalization during February. Investor concerns intensified after U.S. technology companies unveiled new AI-driven automation tools capable of performing tasks traditionally handled by outsourcing firms.

Companies such as Anthropic and Palantir Technologies announced updates that highlighted the growing role of AI in enterprise operations.

These developments raised fears that automation could eventually reduce demand for traditional IT services provided by outsourcing companies.

Sector Faces Multiple Headwinds

Analysts say the industry is navigating a challenging environment that includes both technological disruption and weaker client spending.

While Indian IT firms remain central to global technology services, the rapid development of AI tools is forcing companies to adapt their business models.

Partnerships with leading AI developers could help stabilize investor confidence. For example, Infosys has pursued strategic collaborations with AI developers to expand its capabilities in automation and generative AI.

Foreign Investors Shift to Other Sectors

Despite the heavy selling in technology stocks, overall foreign investment flows into India remained strong.

Foreign portfolio investors rotated into other sectors, generating total inflows of roughly ₹226.15 billion during February — the highest level in 17 months.

Industries such as capital goods, financial services, metals, and energy attracted strong buying as corporate earnings improved.

Investor sentiment also benefited from progress on international trade agreements, including a deal between India and the European Union, as well as an interim trade framework with the United States.

Geopolitics Adds New Risks

Even as foreign investors increased exposure to some sectors, the recovery in global risk appetite remains fragile.

In early March, investors sold roughly ₹175.7 billion of Indian equities within just four trading sessions as geopolitical tensions escalated following the conflict between the U.S.-Israel coalition and Iran.

Higher oil prices and global market volatility have made foreign investment flows increasingly sensitive to geopolitical developments.