International investors withdrew a staggering $1.85 billion from Indian technology companies during February, representing the largest monthly exodus from the sector in seven months, according to new data released Friday.
The massive selloff by foreign portfolio investors totaled 169.49 billion rupees and triggered a devastating 19.5% decline in India’s IT stock index – the worst monthly drop since September 2008 during the global financial crisis, National Securities Depository data revealed.
Investor anxiety spiked after major U.S. technology companies including Anthropic and Palantir announced significant advances in artificial intelligence automation tools. The developments raised fears that AI could disrupt traditional information technology services and reduce demand for Indian IT companies.
The ten companies that make up the IT index saw their combined market value plummet by approximately $62.8 billion throughout February. This follows a record-breaking year in 2023 when foreign investors dumped $8.18 billion worth of Indian IT stocks due to declining earnings and reduced client spending.
“The IT sector is facing multiple headwinds, particularly from the rapid advancement of AI tools,” explained Piyush Gupta, a fund manager at AlphaGrep Investment Management.
Market analysts believe that strategic partnerships between Indian technology firms and global AI companies – such as the collaboration between Infosys and Anthropic – along with improved sector earnings will be essential to winning back international investor confidence.
Despite the technology sector turmoil, February wasn’t entirely negative for Indian markets. International investors actually increased their overall investments to 226.15 billion rupees, the highest level in 17 months since September 2024, by shifting money into other market segments.
This broader investment rebound was driven by stronger corporate earnings and reduced trade tensions following India’s completion of a significant trade agreement with the European Union and progress toward a framework deal with the United States.
Foreign money flowed heavily into capital goods, financial services, metals, and energy companies, supported by improving earnings despite temporary impacts from new labor regulations.
However, Gupta cautioned that while stronger earnings and trade progress support long-term prospects, the return of foreign investment will likely be gradual and remains vulnerable to geopolitical events and external market shocks.
That vulnerability became apparent quickly. International investors sold 175.70 billion rupees worth of Indian stocks in just four trading sessions during March as escalating tensions in the U.S.-Israeli conflict with Iran drove up oil prices and reduced global appetite for riskier investments.
