Retail investors keep faith in IT sector’s multi-year bull run as institutions waver

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26 Aug, 2025 12:21

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In the worst quarter for information technology stocks in two years when both foreign and domestic institutional investors were offloading their holdings, domestic retail investors were busy catching them.

The March quarter saw the IT sector’s invincibility come under strain as surging global yields and doubts over the sustainability of high-growth rates of 2021 nudged investors to book profits. The Nifty IT index fell over 6 percent in the quarter, a first in eight.

Foreign investors were the biggest drivers of the losses, as they offloaded shares worth Rs 28,220 crore in the quarter, while equity mutual funds trimmed their exposure to the sector by 50 basis points to 13 percent during the period.

The sell-off from institutional investors was well-timed in hindsight if the March quarter earnings of sector leaders TCS and Infosys are an indication of what may lie ahead for other IT companies.

While TCS managed to meet Street expectations on earnings, Infosys’ quarterly earnings and guidance left much to be desired. Shares of the Bengaluru-based company sank 7 percent on April 18 in one of its worst single-day performances in two years.

Infosys’ guidance of 13-15 percent underwhelmed the Street but Chief Executive Officer Salil Parikh asserted that the deal pipeline was strong while margins may remain resilient despite concerns over surging attrition level.

Brokerage firm ICICI Securities said in a note that after three and a half years of outperformance to the Nifty, it was time for the IT sector to underperform.

“Taking notes from the past, we believe Nifty IT should now start underperforming Nifty 50 due to slowing revenue growth, margin headwinds, elevated consensus expectations and valuations, and weak macro environment,” the brokerage firm said.

Keep calm and BTD (buy the dip)

Retail investors, however, showed more patience and belief in the sector’s ability to sustain growth, while institutional investors saw a flash in the pan.

Brokerage firm Macquarie Securities India said the market’s view of the stellar growth in 2021-22 for IT companies being a “one-off” driven by “pent-up” demand is misplaced. Retail investors, going by their activity in the March quarter, appeared to agree.

Out of the 11 information technology stocks that have so far disclosed their March quarter shareholding, retail investors were buyers in all of them.

Retail investors raised stakes in Tata Consultancy Services, Wipro, KPIT Technologies, Mphasis, and Birlasoft among others by 0.03-5.82 percent in the March quarter, reflecting their optimism for a sector that had been the leader of the bull market in 2021.

The biggest buying came in KPIT Technologies, where retail investors raised their stake by 5.82 percent in the March quarter helping limit the decline in the stock to merely 1.9 percent when some of its bigger peers saw their stock sink around 20 percent in the same period.

Retail going one up on institutions?

Based on the current stock prices of several IT companies, investors are betting on revenue growth for largecap IT companies slowing in 2022-23 and 2023-24, analysts said.

“We beg to differ as we look through a practitioner’s lens to analyse the industry. Our analysis of incremental revenue points to a technology refresh that will lift growth rates for the whole industry for years to come,” Macquarie Securities said in a note.

The COVID-19 pandemic acted as a catalyst for the adoption of digital by companies across the world as employees started working from remote locations and companies looked to revamp supply chains.

TCS’ ability to win two deals worth $1 billion alone and overall deals of $11.3 billion in the March quarter despite nearly one and a half years of digital transformation cycle suggested that demand may not remain a problem for IT companies.

“We see digital transformation as the biggest enterprise technology shift since the adoption of web technologies and ERP and expect it to take years and for demand to remain strong at least till FY25,” Macquarie Securities said.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.