IT crash hits mutual funds: Time to rebalance or stay put?

ITstocks

• Indian IT stocks' sharp fall erodes over Rs 50,000 crore in MFs
• Experts urge investors to review tech exposure, avoid rash buying
• AI-driven uncertainty makes averaging down IT funds risky now

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The sharp fall in Indian IT stocks this month is now showing up in mutual fund portfolios, reminding investors how sector-heavy bets can quickly swing portfolio returns, especially when the uncertainty is structural, not just another routine market dip.

This correction is being linked to concerns that rapid advances in generative AI could change how traditional IT services are delivered, a key revenue driver for India’s software exporters. Unlike a typical earnings-led pullback, this phase reflects deeper questions about how business models may evolve. That’s why experts say investors should focus on allocation discipline rather than rushing to buy the dip.

The impact has been visible. Mutual funds’ combined exposure to the top 10 IT stocks fell to Rs 3.04 lakh crore as of February 13, from Rs 3.56 lakh crore at the end of January, implying a notional erosion of over Rs 50,000 crore, according to data from ACE Equities.

Over the period of one week tech funds reurn is down by 6 percent while one month return is down by 12 percent.

Heavyweights such as Infosys, Tata Consultancy Services, and HCL Technologies have each seen double-digit declines this month, dragging the Nifty IT lower by about 14 percent. Because many technology-focused mutual funds are concentrated in these stocks, the sector-wide fall has quickly translated into NAV pressure.

How much IT exposure is too much right now?

Experts say what investors should do next depends largely on how much technology exposure they already have.

“For investors with 5-10 percent exposure, IT is a sector allocation, not a portfolio driver,” says Gaurav Arora, Head of Research at SAHI. At this level, short-term volatility is unlikely to derail long-term goals, so investors can stay disciplined.

The situation changes when technology funds make up a large share of equity holdings. When exposure rises to 25-30 percent or more, concentration risk becomes meaningful. In such cases, gradually rebalancing, trimming excess exposure and redirecting flows toward diversified funds, can help manage risk without exiting the sector entirely.

Should you be averaging your portfolio in this dip?

Market falls often tempt investors to average down, but experts say this is not a straightforward buy-the-dip moment.

Because the correction is tied to uncertainty around how AI could reshape the industry, visibility remains limited. Averaging simply because prices look cheaper may therefore be premature.

Lump-sum investors are advised to stagger any fresh investments and watch how companies adapt to AI-driven changes. “This transition is about how companies reposition themselves, not just valuations,” says Swati Jain, CEO-Wealth at Arihant Capital Markets.

For SIP investors, the message is to stay disciplined, but also review allocation. If tech funds form a small portion of monthly SIPs, continuing them supports long-term cost averaging. If thematic tech exposure dominates, redirecting future SIP flows toward diversified funds may help restore balance.

What’s the bigger takeaway for investors?

Technology funds can boost returns in favorable cycles, but they can also magnify volatility when structural uncertainty appears. This correction is less about guessing when IT stocks will bounce back and more about ensuring portfolios remain balanced enough to absorb shocks.

For investors, the priority is not chasing falling prices, but keeping allocations aligned with long-term goals, especially when the future shape of disruption is still evolving.