Mutual funds trimmed their exposure to information technology companies in May 2026, reflecting growing concerns over the sector's near-term growth outlook amid persistent macroeconomic uncertainties and signs of slowing discretionary technology spending by global clients.
According to sectoral holding data by Prime Database, mutual fund investments in IT companies fell by Rs 4,810 crore during the month to Rs 3.13 lakh crore from Rs 3.18 lakh crore in April. The sector's share in total mutual fund equity holdings declined to 5.99% from 6.16%, making IT one of the few sectors to witness a reduction in portfolio allocation despite an overall increase in mutual fund equity holdings.
The decline comes even as mutual funds increased their overall equity exposure by ₹61,404 crore in May, taking total sectoral holdings to ₹52.3 lakh crore. Fund managers instead directed fresh allocations toward healthcare, industrials and consumer-focused sectors that are seen benefiting more directly from India's domestic growth story.
The reduction in IT exposure coincides with rising investor concerns over demand visibility in key overseas markets, particularly the United States, which accounts for a significant share of revenue for India's leading software exporters.
"The current sell-off in Indian IT stocks is a direct reflex reaction to global tech giant Accenture trimming its full-year revenue outlook," said Shashwat Singh, Fundamental Analyst at Bajaj Broking.
"By nudging its constant-currency revenue growth guidance down to 3-4% from 3-5%, and its core commercial guidance down to 4-5% from 4-6%, Accenture has effectively confirmed that clients remain highly cautious with their wallets. Because Indian IT firms rely heavily on the same global pipeline for discretionary technology projects, this shift in Accenture's forecast serves as a broad warning signal for the entire sector," Singh said.
The cautious stance adopted by fund managers also mirrors broader concerns expressed by brokerages. Analysts at Nomura said the ongoing conflict in the Middle East could have a near-term impact on revenues of Indian IT services companies during the first half of FY27. While the brokerage expects artificial intelligence-related projects to become larger as clients move from proof-of-concept stages to live deployments, it noted that a meaningful acceleration in sector growth would depend on an improvement in global macroeconomic conditions, particularly in the US economy.
The portfolio shift was visible in the sectors that attracted fresh money. Healthcare emerged as the biggest beneficiary, with mutual fund holdings rising by Rs 20,545 crore to Rs 4.17 lakh crore. The sector's share in total assets increased from 7.66% to 7.97%.
Industrials followed closely, attracting Rs 18,596 crore of additional investments and increasing their share in mutual fund portfolios to 10.52% from 10.29%. Consumer discretionary companies also received net inflows of Rs 13,729 crore, reflecting continued confidence in domestic consumption trends.
The contrast highlights a broader rotation underway in mutual fund portfolios. While export-oriented technology companies face uncertainty due to slowing global spending and geopolitical risks, domestic-facing sectors linked to healthcare demand, infrastructure investment, manufacturing and consumption are drawing greater investor interest.
Notably, the reduction in IT holdings came even though mutual fund ownership as a percentage of the sector's market capitalisation edged up slightly to 11.22% from 11.16%. This suggests that the decline in the market value of IT stocks may have been steeper than the reduction in mutual fund holdings, pointing to weakness in sector valuations during the month.
Apart from IT, mutual funds also reduced exposure to FMCG and energy stocks. Holdings in FMCG companies fell by Rs 7,794 crore, while energy stocks witnessed a decline of Rs 9,130 crore.