Mutual Funds Cut IT Exposure To 8-Year Low In April. Is AI Driving The Shift?

Mutual funds have continued trimming their exposure to technology stocks as concerns around artificial intelligence (AI), slower global spending and weak earnings visibility weigh on sentiment in the sector.

According to a recent report by a brokerage house, the technology sector’s share in mutual fund portfolios dropped to 6.7% in April 2026. That marks the lowest allocation level seen in nearly eight years.

The report showed that exposure to the sector fell 60 basis points from March and was down 180 basis points compared to the same period last year.

IT Stocks Continue To Lag Broader Markets

The sharp reduction in allocation comes after a prolonged period of underperformance in information technology (IT) stocks.

Data cited in the report showed that the Nifty IT index declined 27.62% over the last one year, while the Nifty IT TRI was down 25.85% during the same period.

Investor concerns have grown around whether traditional Indian IT services firms could face pressure as artificial intelligence changes the way companies build, test and maintain software systems.

Why Are Fund Managers Reducing Exposure?

Market experts say several factors have led to cautious sentiment in IT stocks.

According to analysts, slower global IT spending, delays in client decision-making and weaker earnings growth have hurt investor confidence in the sector.

They also noted that investors have recently shifted focus towards domestic-facing sectors such as financials, manufacturing and defence, where earnings visibility appears stronger at present.

Experts further said concerns around weaker discretionary spending in key markets like the US and Europe have added pressure on the sector.

They believe the industry is currently going through a transition phase as companies adjust to changing client priorities around AI adoption and automation.

AI Concerns Continue To Grow

Artificial intelligence has become one of the biggest themes influencing sentiment in technology stocks globally.

Many investors now believe automation tools could eventually reduce demand for traditional manpower-heavy outsourcing work, particularly repetitive coding, support and maintenance services that have historically generated large revenues for Indian IT firms.

At the same time, global technology giants continue spending aggressively on AI infrastructure.

According to a media report, major global technology companies continue to spend heavily on AI and cloud infrastructure.

Microsoft may spend close to $190 billion on capital expenditure this year. Alphabet and Meta Platforms have also increased their spending targets for 2026.

Amazon, too, has stayed aggressive with its investment plans. The company continues to focus heavily on AI and cloud infrastructure.

Despite this surge in spending, investors remain uncertain about how much of the long-term opportunity will eventually flow towards Indian IT service providers.

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Are Long-Term Opportunities Still Intact?

Despite near-term caution, analysts believe parts of the technology sector may continue offering long-term growth opportunities.

Experts say businesses focused on AI implementation, cybersecurity, cloud migration, data analytics and enterprise automation could remain relatively resilient compared to traditional outsourcing models.

Minocha said the recent correction has made some quality technology companies more attractive for long-term investors.

Jain added that companies with strong balance sheets, global client relationships and capabilities in newer digital technologies may still benefit as enterprises continue increasing spending on automation and operational efficiency over the coming years.

Sources:

The Economic Times

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