Mutual fund holdings of IT stocks sink to record low in September

A mutual fund’s equity AUM is the market value of all shares held across its equity schemes. Saying IT stocks made up 5.3% means that IT companies represented 5.3% of that total value in September. The figure measures portfolio weight, not the percentage return earned from IT stocks.

For example, if equity AUM were Rs 1,000 crore, a 5.3% IT allocation would equal about Rs 53 crore. The remaining money would be invested in other sectors and companies. The article shows this was a much smaller share than 7.6% at the end of 2025 and 9.24% at the end of 2024.

This matters because sector weight reflects fund managers’ preferences and risk assessments. IT’s share once reached a record 13.4% at the end of 2021. Its decline suggests managers have reduced the sector’s importance in portfolios, partly because of uncertainty about AI’s effect on software-services businesses.

The allocation fell from 13.4% at the end of 2021 to 5.3% in September. Subtracting the two figures gives an 8.1 percentage-point decline. This is a change in portfolio share, not a direct measure of how much money mutual funds lost or withdrew.

Viewed relatively, 5.3% is about 39.6% of the earlier 13.4% weight. Put another way, the sector’s share became roughly 60.4% smaller than its 2021 peak. The fall also continued from 9.24% at the end of 2024 and 7.6% at the end of 2025.

The shift shows how strongly fund preferences changed. The article links it to uncertainty about AI disruption, muted revenue growth, and falling valuations. However, individual funds sometimes bought more shares in particular companies. That means the overall decline reflects portfolio weights and changing values as well as company-level buying or selling.

The biggest ranking deterioration was Wipro’s. It fell to 316th place among mutual funds’ largest holdings in September, from 88th at the beginning of 2026 and 56th in 2024. That was a much sharper fall than the other named IT companies.

Infosys moved from among the five largest mutual-fund holdings at the start of 2026 to 10th in September. TCS fell from 10th in 2024 and the top 14 in 2025 to 18th in September. HCL Tech slipped from 20th to 25th, while Tech Mahindra fell from 25th to 31st.

The rankings show relative importance within mutual-fund portfolios. They do not necessarily mean every fund sold every stock. Indeed, funds increased their shareholdings in Infosys, TCS, and HCL Tech during the period. Wipro was different: its holdings fell by 33.96 crore shares, helping explain its steep decline.

India’s software-services industry has long depended on large teams performing application development and maintenance work. Fund managers worry that AI agents could handle more of these tasks with fewer people. If that happens, clients may need fewer services, or suppliers may face pressure to lower prices.

The article describes this as a threat to a labour-intensive business model. Harsh Thakkar said revenue growth remained muted but had not collapsed. Even so, investors priced in the potential effect of AI agents, which caused valuations to fall sharply. This explains why share prices could weaken before financial results show a major downturn.

The concern is about the extent and timing of disruption, not proof that the industry has already been displaced. Fund managers therefore cut their overall IT exposure. Later, promising management commentary, reasonable valuations, and a favourable anti-AI trade helped improve sentiment toward Indian IT companies, although the disruption question remained important.

Share prices reflect investors’ expectations about future earnings, cash flows, and growth, not just the latest revenue figure. When investors believe a company’s future growth may slow, they often reduce the price they are willing to pay for each unit of expected earnings. That reduction is called de-rating.

The article gives this exact pattern in IT stocks. Harsh Thakkar said the 2026 correction was more a de-rating story than an earnings story. Revenue growth was muted but had not collapsed. Yet investors worried that AI agents could disrupt application development and maintenance, so they marked down valuations sharply.

This can make a stock decline before its reported business results deteriorate. The Nifty IT index had fallen about 28% through October 8, compared with a 14% decline in the Nifty. Later, it rebounded 11.7% in one week as sentiment improved, showing how quickly expectations can influence prices.

A sector’s portfolio share depends on the value of all its holdings compared with total equity AUM. Buying more shares in selected IT companies does not guarantee that IT’s overall percentage will rise. Other sectors may grow faster, IT share prices may fall, or funds may reduce positions in other IT names.

The article provides clear examples. Funds increased Infosys holdings by 2.7 crore shares, TCS holdings by 61 lakh shares, and HCL Tech holdings by 1.8 crore shares. At the same time, they reduced Tech Mahindra by 45 lakh shares and Wipro by 33.96 crore shares. These mixed moves can coexist with a lower sector allocation.

The key mechanism is portfolio weighting. A fund may add to companies it considers stronger while cutting weaker or more exposed names. Meanwhile, falling IT valuations reduce the market value of the sector’s holdings. Therefore, company-level buying and sector-level reduction are not contradictory.

In general, a mutual fund collects money from many investors and invests it in shares and other assets. Its equity AUM is the current market value of those equity holdings, after accounting for cash, flows, expenses, and other adjustments. AUM changes when investors add or withdraw money, prices move, or the fund buys and sells securities.

Managers choose sector weights through research and portfolio strategy. They may compare growth prospects, valuations, business risks, and the desired level of diversification. A sector’s weight is then calculated as the market value of its holdings divided by total equity AUM. This explains why a fund can buy shares in one company while reducing the sector’s overall percentage.

For this article, managers cut IT exposure as AI disruption became a concern. Yet they added Infosys, TCS, and HCL Tech shares while reducing Tech Mahindra and Wipro. These decisions show that sector allocation and individual-stock selection operate together, not identically.