Foreign investors divested Indian information technology stocks at the highest rate in seven months during February. Concerns over artificial intelligence disrupting earnings led to the sale of approximately $1.85 billion in IT stocks. This resulted in a significant 19.5% drop for the IT index, marking its worst monthly performance since September 2008.
The market capitalization of the index's constituents fell by about $62.8 billion in February, following major AI updates from U.S. firms like Anthropic and Palantir. Analysts suggest that constructive collaborations between Indian IT companies and global AI leaders, alongside improved sector earnings, are vital to rekindle foreign portfolio investor interest.
Despite the IT sector's challenges, February also saw significant inflows into other market segments, totaling $2.46 billion, the highest in 17 months. This broader foreign appetite was driven by improving corporate earnings and easing trade tensions following trade deals with the European Union and an interim agreement with the U.S. Sectors like capital goods, financials, metals, and energy attracted strong foreign investment.
However, investor sentiment remains fragile. Early March saw substantial net sales of shares as escalating geopolitical tensions, particularly the U.S.-Israeli conflict impacting oil prices, reduced global risk appetite.