Flows Reset: FIIs Log Out of IT Stocks in April Amid Glitch in Global Macros

Caught in between the crossroads of Trump’s tariff offensive and worsening global macroeconomic conditions, the Indian information technology sector also bore brunt of heavy FII selling in the first fortnight of April. Foreign institutional investors flocked out of IT stocks, pulling out a staggering Rs 13,828 crore from the sector during this period, as per data available on the NSDL website. 

The exodus comes after foreign investors briefly poured in Rs 805 crore into the sector in February, marking a stark contrast to the Rs 34,574 crore exodus from the overall Indian equities market.

Since the beginning of March, international money managers have packed their bags and headed for the exit as a staggering Rs 22,279 crore of foreign capital has vanished from IT counters. For context, the sector attracted over Rs 14,000 crore of FPI inflows in 2024. This dramatic reversal has left the front-line sector gasping for breath.

A storm of sluggish global tech demand, lacklustre earnings growth, and slowing economic growth were the culprits working behind the scenes. But the actual shocker that rattled investor sentiment towards the sector came on April 2—Liberation Day—when President Donald Trump's reciprocal tariff announcement sent shockwaves through global financial markets.

Post the tariff announcement, brokerage houses quickly rewrote their economic scripts. Goldman Sachs raised US recession odds to 45% from 35%, their second revision in a week as investment banks joined the chorus of doom. Apollo Global Management Chief Economist Torsten Slok outlined a doom-laden outlook as he expects a 90% chance of US recession in 2025 if there were no policy reversals. Even International Monetary Fund flagged caution alarms, stating that the US is confronting an increased risk of recession as Trump’s trade war pushes the global economy into a ‘significant slowdown’.

These forecasts spell trouble for Indian IT firms as US corporate, that make up the biggest chunk of their clientele are expected to take on a cautious footing over IT discretionary spends. Adding another layer of panic is the fear of a recession in the US, which poses a risk of muted discretionary spending of IT clients, as highlighted by the managements of major IT firms in their post earnings calls thus far.

Adding insult to the injury, the dollar has also rattled under pressure ever since the US came forward with its tariff stint. The dollar index has tumbled over 5% in just one month, working as a silent killer for foreign revenue-dependent tech companies. As the rupee appreciates, the values of dollar-denominated revenues reduce, hurting the profitability of the companies. Six Indian IT firms--Mphasis, Persistent Systems, LTIMindtree, HCL Technologies, Infosys and TCS--have over 68% of average exposure to US markets, according to a report by Geojit Investments.

Meanwhile, the Indian IT major Tata Consultancy Services reported a 1.3% sequential fall in net profit for the March quarter. North America remains a key market for the IT major and any shifts in the region's discretionary spending can take a toll on the overall earnings of Indian IT firms. While the management did predict that FY26 will outshine FY25, they also acknowledged the shadow of ‘short-term uncertainties,’ emanating from tariff tensions.

Besides losing the hold over foreign capital, the sector's influence has also waned dramatically on the headline indices. Its weightage in the benchmark Nifty 50 has fallen to a 17-year low of 10.2% last week, just marginally above the March 2008 record low of 9.7%, according to a Business Standard report. The drop in weightage came on the back of a sharp selloff in IT stocks this year, which also dragged the broader Nifty IT index 23% till April 15.

Since then, however, the sectoral index has clawed back nearly 6%. In today’s session too, Nifty IT surged as much as 4%, signalling a coming of spring after a harsh winter. However, whether or not this recovery sustains is a thing only time will tell.