Nifty IT passive funds see outflows despite sharp rebound in the sector

Lower growth in passive fund AUMs vis-a-vis Nifty IT indicate about Rs 280 cr outflow

Passive funds tracking the Nifty IT index witnessed outflows in July even as the sector rebounded sharply from multi-year lows. 

The combined assets under management (AUM) of Nifty IT index funds and exchange-traded funds (ETFs) rose 13.8 per cent to about ₹6,600 crore in July (up to 30th), trailing the Nifty IT index's 18.6 per cent gain during the period.

 

The gap suggests investors booked profits or used the rally to exit at lower losses, resulting in estimated net outflows of around ₹280 crore.

 

The sharp rebound in IT stocks in July was driven by a combination of better-than-expected earnings sentiment, easing concerns around artificial intelligence (AI) and attractive valuations following the steep correction earlier this year.

 

The Nifty IT index gained 17 per cent in July, its strongest monthly performance in six years. 

“While the Nifty IT index rallied 17 per cent this month, the first quarter earnings of most frontline technology companies were largely in line with estimates, helping restore investor confidence. Also, the initial AI-driven euphoria, which triggered a massive rally in Asian markets such as South Korea's Kospi and Taiwan, has subsided over the past few weeks, resulting in a recovery in domestic IT stocks,” said Ankur Punj, managing director (MD) and business head, Equirus Wealth.

 

The outflows come after passive IT funds had logged net inflows over the one-year period ending in June.

 

An analysis by Business Standard showed that investors continued allocating money to Nifty IT index funds and ETFs even as the benchmark index remained among the worst-performing sectoral indices during the one-year period.

 

The AUM of passive funds tracking the Nifty IT index was up over 20 per cent in the one-year period ending June even as the index declined 30 per cent in the same period.

 

Calculations based on changes in fund assets and the Nifty IT index had estimated net inflows of around ₹2,500 crore.

The Nifty IT index had declined nearly 31 per cent during the first half of calendar year 2026.

 

IT stocks remained under pressure over the past year amid persistent uncertainty over the global technology spending outlook, especially the impact of AI on traditional IT services.

 

The outlook, based on revenue growth forecasts provided by domestic and global firms, remains muted. The lack of growth visibility has kept most asset and wealth managers underweight on the sector. 

The correction compressed valuations of largecap IT companies to multi-year lows.

 

As fears around AI-led disruption eased and companies delivered earnings largely in line with expectations, investor sentiments improved to some extent, according to experts.

 

The July rebound also coincided with a shift in global technology stocks as the initial enthusiasm surrounding AI-linked semiconductor companies moderated. This benefitted software and IT services companies.