What’s the story
Mutual funds have slashed their investment in the technology sector to an eight-year low of 6.7% in April 2026, a report by Motilal Oswal Financial Services has shown.
The decline is attributed to fears of artificial intelligence (AI)-led disruption, a slowdown in global IT spending, and weak earnings visibility.
The weightage fell by 60 basis points month-on-month and 180 basis points year-on-year in mutual fund portfolios.
Factors behind decline in tech allocation
The Nifty IT index has lagged behind the broader markets over the past year, raising concerns that Indian IT companies may be missing out on early AI opportunities.
Rajesh Minocha, a Certified Financial Planner and Founder of Financial Radiance, attributed this decline in technology allocation in mutual fund portfolios to weaker global IT spending, delayed deal flows, muted earnings growth and a current investor preference for domestic sectors such as financials, manufacturing, and defense.
Concerns over global IT spending and client priorities
Abhishek Jain, Head of Research at Arihant Capital Markets, said the decline is mainly due to concerns over slowing global IT spending and weaker discretionary demand.
He also noted uncertainty about the recovery pace in key markets like the US and Europe.
Jain emphasized that investors have become cautious as the sector undergoes a transition phase led by AI disruption and changing client spending priorities.
Period of consolidation and re-rating for technology sector
Jain further noted that sectors such as financials, capital goods, and defense have attracted stronger flows due to better near-term earnings visibility.
This has resulted in a relatively underweight positioning in technology.
He stressed that the sector is not facing a structural decline but rather a period of consolidation and re-rating as markets assess the long-term impact of AI on traditional IT services models.
AI’s potential disruption to traditional IT services
The rise of AI has become a major concern for investors in the technology sector. AI-led automation is increasingly viewed as a potential disruptor for traditional manpower-heavy outsourcing businesses, especially repetitive coding and support services that have long been revenue drivers for Indian IT companies.
Big tech’s aggressive capex plans amid investor concerns
Despite investor concerns, big tech companies are pushing ahead with aggressive capital expenditure (capex) plans.
Microsoft plans to spend $190 billion this year, including about $25 billion due to higher component costs.
Alphabet and Meta have both increased their 2026 capex guidance to $180-190 billion and $125-145 billion respectively, while Amazon has kept its guidance unchanged at $200 billion.
Adapting to AI disruption
Jain acknowledged that AI-led automation will disrupt parts of the traditional IT services business model, especially low-end repetitive work and manpower-heavy outsourcing models.
However, he believes this may not be a negative for the entire sector.
Large IT companies are already adapting by investing heavily in AI, cloud transformation, cybersecurity, and automation, Jain said.