The Indian IT sector is beginning to regain momentum after a difficult phase, and investor interest is slowly returning. Mutual funds have started increasing their exposure to IT companies at a time when the broader market is performing strongly and earnings from major tech firms are stabilising. While the Nifty 50 has delivered solid gains this year, the Nifty IT index has remained in negative territory, creating a wide performance gap.
This contrast has sparked an important question for many retail investors. With mutual funds showing renewed confidence, could this be an early buying opportunity for those who have been waiting for long?
Let us understand the complete picture.
What’s Happening?
IT stocks faced one of the steepest corrections when the broader market weakened after September 2024, but interest is now gradually returning as the Indian market trades near all-time high levels. This shift is largely the result of better-than-expected Q2 earnings, where major Indian IT companies surprised investors with stronger revenue growth, improved margins, and steady deal momentum despite a still-soft global tech spending environment.
Mutual funds have marginally increased their exposure to IT stocks, raising allocations to 7.6% in October after hitting a 67-month low in September 2025. This is a small but clear month-on-month rise from 7.5% in September, and a more visible shift compared to last year when the IT weight stood at 8.9% in October 2024.
According to the Motilal Oswal Financial Services report, fund managers also increased their allocations to Technology, NBFCs, Oil & Gas, PSU Banks, Telecom, and Consumer Durables during October. At the same time, they reduced exposure to Automobiles, Utilities, Cement, Chemicals, and Textiles.
MF AUM Trends across Major Sectors
The total equity AUM of mutual funds rose to Rs 49.91 trillion in October 2025. This is higher than Rs 47.62 trillion in September and Rs 41.61 trillion in October 2024, marking nearly 20% YoY growth.
Within the top 15 sectors that each hold more than Rs 1 trillion in AUM, the IT sector has slipped from the second position last year to the third spot. Banking and Finance, along with Auto and Auto Ancillaries, now lead the list.
Absolute AUM growth may be influenced by sector size, yet it still helps in understanding which areas have seen the most meaningful shifts in market value. Among these sectors, Aviation recorded the highest jump in AUM, rising by Rs 15,409 crore, a growth of 67.90% from October 2024 to October 2025. During the same period, the AUM of the IT sector increased modestly by 3.53%.
How IT Companies Performed in Q2FY26
The Indian IT sector returned to positive sequential growth in Q2FY26, with tier-1 companies reversing declines from the previous two quarters and tier-2 firms continuing to outperform. According to the Axis Capital sector update, Infosys and Wipro delivered results broadly in line with expectations, while Tech Mahindra reported a slight upside, as mentioned in The Economic Times. Meanwhile, tier-2 players such as Coforge and Persistent Systems led growth, and BPO-focused firms posted steady performance.
Margins also improved across the sector, supported by currency gains, delayed wage hikes, and lower seasonal costs. Offshore-centric BPO companies saw the largest margin expansion, while most ER&D firms, except Tata Technologies, lagged due to softer growth.
Among the leaders, HCL Technologies maintained an EBIT margin of 17–18%, Infosys stayed at 20–22%, and Sagility raised its adjusted EBITDA margin outlook after a strong first half. The report also noted that early GenAI spending could provide further near-term support to the sector’s business cycle.
What Does This Mean for Investors?
For investors, the recent shift in sentiment indicates that the IT sector may be entering the early stages of recovery. Mutual funds increasing their exposure suggests that institutional investors see value at current levels, especially after IT stocks have significantly underperformed the broader market. With earnings showing signs of stability and long-term drivers like cloud adoption and digital transformation remaining firmly in place, the sector appears to be moving past its weakest phase.
According to Macquarie Capital, early signs of improvement in major verticals and a gradual revival in project pipelines suggest that 2026 could mark a clear turnaround year. The sector is seen as being at the bottom of its demand cycle, which typically leads to recovery over the next twelve to eighteen months, as mentioned by NDTV Profit.
What’s Next?
The Indian IT sector is expected to maintain steady growth in the coming years. After expanding at a CAGR of 8.1% between FY22 and FY25, it is projected to grow at an even higher pace of 8.7% annually to reach $400 billion by FY30. According to Gartner, Indian enterprises are rapidly increasing their adoption of cloud and digital technologies, which will drive strong growth in IT spending in 2026. India’s overall IT spending is also expected to rise faster than the global average.
However, investors should remain selective and focus on companies that demonstrate consistent execution, strong deal pipelines, and stable margins as the recovery unfolds.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
