IT sell-off on generative AI fears hits LIC, mutual funds with 20% notional loss

 Within the month to February 24, the Nifty IT index plunged about 21 per cent, rising as one of many worst-performing sectors within the home fairness market
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PAUL NORONHA

Allocations to IT shares by key institutional buyers, together with mutual funds and LIC, have seen a pointy erosion, with practically one-fifth of their worth worn out thus far in February. Within the month to February 24, the Nifty IT index plunged about 21 per cent, rising as one of many worst-performing sectors within the home fairness market. The index constituents corrected between 17 per cent and 28 per cent in the course of the interval.

As of January 31, 2026, mutual funds held IT shares value ₹3.84 lakh crore. By February 24, this had declined to ₹3.03 lakh crore — a steep 21 per cent fall, translating right into a notional erosion of over ₹81,000 crore.

LIC’s portfolio mirrors this development. Its IT holdings dropped from ₹2.18 lakh crore to ₹1.73 lakh crore throughout the identical interval, additionally down 21 per cent, implying a worth erosion of about ₹45,000 crore. For this evaluation, mutual fund portfolio information as of January 31, 2026, was thought-about. For LIC, December 2025 shareholding information reflecting public disclosures of holdings above 1 per cent was used.

Broad-based fall

The correction has been broad-based, spanning each large-cap and mid-cap names. Amongst heavyweights, Infosys and TCS noticed declines of twenty-two per cent and 18 per cent, respectively, in mutual fund portfolios. HCL Applied sciences and Tech Mahindra fell over 20 per cent. Mid-tier IT corporations witnessed even sharper drawdowns — Coforge and KPIT Applied sciences had been down 27 per cent, LTIMindtree fell 25 per cent, and Hexaware Applied sciences dropped a steep 32 per cent. LIC’s publicity displays an identical sample.

The sell-off comes amid rising disruption issues linked to generative AI platforms and superior fashions developed by firms equivalent to Anthropic, which might automate coding, testing and assist features — core income streams for IT providers corporations.

A report by Citrini Analysis sketched out a situation the place firms equivalent to Tata Consultancy Companies, Infosys and Wipro may face contract cancellations by 2027.

Deflation threat

HSBC World Analysis stated it now expects a 14 – 16 per cent gross deflationary threat from AI over the subsequent few years to total sector revenues, in contrast with its earlier estimate of 8–10 per cent. Analysts led famous that whereas proactive firms could offset a number of the stress by various income streams and productiveness beneficial properties, the near-term impression of AI-led pricing disruption may weigh on progress. The brokerage added that though US company outcomes stay sturdy and the macro backdrop for IT spending in 2026 seems beneficial, Indian IT valuations usually are not low cost in absolute phrases, even when they appear undemanding on a relative foundation.

Revealed on February 24, 2026