Indian Markets Face IT Selloff Amid Strong Earnings

Domestic equities are expected to open on a weak note as trading resumes, with sentiment hit by global risk-off cues and a sharp correction in technology counters. Gift Nifty was quoted around 25,500 versus Friday’s Nifty close of 25,471, suggesting a flat to mildly negative start.

Ponmudi R, CEO of Enrich Money, said Indian markets are likely to remain increasingly sensitive to global developments after last week’s selloff, which was led predominantly by technology stocks. He described the near‑term backdrop as one of consolidation until clearer signals emerge from global macro data.

Across Asia, equities were down marginally in early Monday deals, reinforcing the cautious tone for risk assets in the region.

Analysts highlighted persistent worries around AI‑driven disruption as a key overhang for India’s IT services heavyweights. Ponmudi noted that these concerns have reversed some of the earlier optimism that followed the US–India interim trade framework and have reinforced a broader risk‑off undertone.

The Nifty IT index has dropped nearly 15% over the past month, with some individual stocks losing more than 50%. Geojit Investments’ Chief Investment Strategist Dr. VK Vijayakumar pointed out that the index fell 8.2% in the week ended February 13 alone, amid what he termed an “Anthropic shock” to IT stocks.

Domestic brokerage commentary cited ongoing disruptions in the IT services sector and their potential spillover to other industries as a key factor to monitor in the near term. Stabilisation in IT is seen as crucial for rebuilding broader market confidence.

Foreign institutional investor (FII) activity has become mixed and cautious in recent sessions. Vijayakumar said that while FIIs were net buyers on most days up to February 13, they still recorded net equity sales of ₹1,374 crore for the month to that date.

He added that the aggregate figure was skewed by a large sell order of ₹7,395 crore on February 13, when the Nifty dropped 336 points amid heavy FII selling in IT names. This contrasted with earlier in the month, when sentiment had improved on the back of a fiscally‑prudent and growth‑oriented 2026 Budget and the India–US trade agreement.

On the domestic side, institutional flows have been more supportive but not uniformly so. While steady DII inflows have offered some cushion, mutual funds have turned net sellers, offloading more than ₹4,000 crore so far in February.

Against the volatile market backdrop, Q3 FY26 earnings for India Inc have been relatively strong. Motilal Financial Research reported that corporate results marked a fourth consecutive quarter of double‑digit earnings growth.

The brokerage highlighted improved sectoral breadth: of 27 sectors under its coverage, 19 delivered double‑digit profit growth, five saw single‑digit gains and only three reported a decline in profit after tax. This dispersion suggests earnings strength has broadened beyond a narrow set of industries.

Looking ahead, Vijayakumar said improving prospects for corporate earnings in FY27 leave large‑cap valuations at what he termed fair levels, particularly after the recent correction. However, he emphasised that sustained recovery in IT would be important for foreign investors to re‑enter more decisively.

Market participants are closely watching upcoming global data releases, including US Federal Reserve minutes, PCE inflation and PMI figures, which Ponmudi said could provide clearer direction on rates and growth. Until then, he expects domestic markets to trade in a consolidation phase with fragile sentiment.

Vijayakumar added that if the recent unwinding of the AI trade in US equities extends, it could paradoxically become a trigger for FIIs to increase allocations to India, which he characterised as a non‑AI market. In his view, once volatility in the IT space subsides, FIIs are likely to return as buyers, supported by the macro backdrop and earnings outlook.

For now, overall capital flows still reflect uncertainty as investors reassess elevated valuations and weigh the balance between strong domestic fundamentals and shifting global risk appetite.