Mutual funds' IT exposure at eight-year low amid AI, growth worries

IT stocks now account for just 6.7% of MF equity holdings, the lowest in eight years: Report

Fund managers seem to be taking a cautious approach to the information technology (IT) sector even as the stocks have corrected sharply over the last 18 months. According to a report, the IT sector’s weight in mutual fund portfolios has slipped to an eight-year low as MF schemes have cut their exposure amid weak earnings growth, disappointments, and artificial intelligence (AI) risks.

 

According to a report from Motilal Oswal Financial Services, IT stocks formed just 6.7 per cent of the total equity holdings by MFs in April 2026, down 60 basis points month-on-month and 180 basis points lower compared to April 2025.

 

The Nifty IT index is down 36 per cent from its December 2024 peak as the sector grapples with multiple headwinds. Weak global demand and cautious spending by clients have slowed deal activity and delayed project ramp-ups. Earnings from bellwethers such as Tata Consultancy Services and Infosys have also remained subdued, with the sector’s top firms expected to post muted revenue growth in the near term. At the same time, rising adoption of artificial intelligence tools has added to concerns over the long-term outlook for traditional IT outsourcing businesses. 

 

The fund managers' stance on the sector, however, appears mixed. While most fund houses have lowered their IT holdings, a few have bought into the sector in the last one year. According to a report from Nuvama Alternative & Quantitative Research, SBI MF had the lowest allocation among large fund houses. The fund house's IT exposure stood at 5.9 per cent in April 2026 compared to 6.4 per cent in April 2025.

 

Vivek Gedda, fund manager at SBI MF, said the fund house has always had low IT exposure, while adding that the uncertainty around AI-led disruption is currently an overhang.

 

“We have typically remained underweight on IT as we continued to see more compelling opportunities elsewhere and were also mindful of emerging structural questions around the industry. The key, in our view, is the uncertainty around AI-led disruption. The medium- to long-term implications for revenue models and growth visibility remain unclear,” he said.

 

He added that valuations are on the positive side and the fund house is looking at selective opportunities.

 

Apart from SBI, six other large fund houses covered by the Nuvama report had less than 10 per cent exposure to the sector. UTI MF had the highest holding in the selected universe at 15.7 per cent despite lowering its exposure in the last one year.