Generative AI fears trigger Rs 50,000 crore notional loss for MFs

IT stocks

• IT stocks' decline causes over Rs 50,000 crore notional MF losses
• Infosys, TCS, HCL Tech see major drops in MF holdings
• AI advances spark concerns over IT services revenue growth

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The ongoing decline in IT stocks has significantly impacted mutual fund portfolios since the start of February, amid concerns that rapid advances in generative artificial intelligence could reduce demand for large-scale, human-led coding and IT support services — a key revenue driver for India’s software exporters.

MFs’ combined investment in the top 10 IT stocks fell to Rs 3.04 lakh crore as of February 13, down from Rs 3.56 lakh crore at the end of January 2026, indicating a notional loss of over Rs 50,000 crore.

According to data from ACE Equities, MFs have their largest holdings in Infosys, followed by Tata Consultancy Services and HCL Technologies. MF holdings in Infosys declined to Rs 1.14 lakh crore from Rs 1.37 lakh crore as of January 2026, translating into a notional loss of around Rs 22,600 crore.

Similarly, MF holdings in TCS fell to Rs 53,660 crore from Rs 62,270 crore, resulting in a notional loss of around Rs 8,600 crore. HCL Technologies saw a notional loss of around Rs 5,800 crore, with current MF holdings declining to Rs 35,080 crore from Rs 40,885 crore at the end of January 2026.

So far in February, Infosys has declined 16.5 percent, TCS has fallen 14 percent and HCL Technologies has dropped 14.2 percent. Tech Mahindra has declined 12 percent, while Persistent Systems and Wipro have fallen around 10 percent each. The Nifty IT index is down 14 percent during the period.

Other IT stocks where MFs have incurred notional losses include Rs 3,900 crore in Tech Mahindra, Rs 2,000 crore in Persistent Systems, Rs 3,670 crore in Coforge, Rs 1,740 crore in Mphasis and Rs 1,231 crore in Wipro.

Among the largest holdings, SBI MF holds around Rs 62,000 crore in the top five IT stocks, followed by ICICI Prudential MF and HDFC MF with holdings of approximately Rs 55,000 crore and Rs 41,600 crore, respectively. Other significant holdings include Rs 29,750 crore by UTI MF, Rs 28,350 crore by Nippon India MF, Rs 23,870 crore by Kotak Mahindra MF, Rs 14,500 crore by Mirae Asset MF and Rs 12,370 crore by Motilal Oswal MF.

The recent selloff in IT stocks gathered pace after Anthropic released a suite of open-source Cowork plug-ins spanning productivity, enterprise search, sales, finance, data, legal, marketing, customer support, product management and biology research. The plug-ins enhance Claude’s agentic capabilities toward domain-specific tasks across business functions.

Analysts noted that software stocks corrected following these developments and believe the impact could extend beyond software to downstream application-managed services revenues for IT services firms.

Meanwhile, during its December 2025 earnings call, Palantir said its Artificial Intelligence Platform can reduce the time required for complex cloud migration of SAP enterprise resource planning systems from a few years to a few weeks. While the proposed timeline appears aggressive, analysts indicated that AI adoption is compressing migration cycles, which could affect application implementation revenues for IT services companies.

According to a recent note by Jefferies India, artificial intelligence could weigh on revenue growth of IT firms over the next one to two years, as deflation in revenues from existing service lines may offset emerging AI-driven revenue streams.

Among large IT companies, TCS, Tech Mahindra and LTIMindtree have higher exposure to application services at around 55 to 60 percent, while HCL Technologies has the lowest exposure at around 40 percent. Within ERP services, Wipro and LTIMindtree have the highest exposure at around 20 percent of sales, while Tech Mahindra has the lowest exposure at 12 percent, the report said.