MFs split on IT revival as outlook improves but uncertainties remain

Split wide open as sector exposure swings from defensive 5% to bold 18%

Fund managers are divided on the prospects for beaten-down information technology (IT) stocks, reflected in the wide variance in equity mutual funds’ (MFs) sector exposure. 

An analysis by Nuvama Alternative & Quantitative Research shows that while six large fund houses were overweight the sector relative to its weight in the Nifty 200 index, five were underweight as of October 2025. UTI MF had the highest exposure at 17.8 per cent, while SBI MF sat at the bottom with 5 per cent. 

As the broader equity market softened after September 2024, IT stocks saw the steepest pullback. 

As of October 31, the Nifty IT index was the weakest major sectoral index over the past year, falling 10 per cent.

 

Earnings fatigue and anxiety around disruption from artificial intelligence (AI) have driven much of the selloff. Even so, sentiment has begun to thaw as expectations build for an earnings pickup in the coming quarters, helped by attractive valuations. 

“Results of IT companies (for the second quarter) indicate that demand trends are stabilising, with fewer programme cancellations and easing headwinds across select sectors. Deal momentum remains steady, skewed towards cost optimisation,” Kotak Institutional Equities said in a report, adding that it expects revenue growth to gather pace in 2026–27. 

Nuvama Institutional Equities also sees room for improvement, though not immediately. 

“Rapid macro deterioration since early 2026 is likely to make 2025–26 a subdued year, with a possible turn in the second half. We expect growth for largecaps to remain tepid in the near term because of macro headwinds but recover over the medium term as technology spending revives and generative AI opens up mammoth opportunities,” the brokerage said in a report.

 

Despite lingering near-term uncertainty, stronger-than-expected second-quarter numbers have helped IT stocks claw back some ground.

 

The Nifty IT index gained over 6 per cent in October and is up 1.7 per cent so far in November. MF activity, however, stayed largely flat during October.

 

According to a Motilal Oswal Financial Services report, MFs’ technology exposure stood at 7.6 per cent in October 2025, inching up from the 67-month low of 7.5 per cent in September.

 

Beyond IT, fund managers were also split on banking stocks. The Nuvama report shows wide variation: four of the 11 large fund houses held around 14 per cent in banking, while others ranged between 17 and 24 per cent.