Minocha further said that the sharp market correction has led to more reasonable valuations, alongside improving deal pipelines, cost optimisation by companies, and an early recovery in demand. He added that several firms have also downsized and outlined plans to redeploy savings from lower remuneration expenses to strengthen their capabilities in the technology space.
Sharing a similar view, Shivam Pathak, CFP and Founder of Asset Elixir, told ETMutualFunds that the rise in tech allocation appears more like a tactical move than a confirmed trend reversal. He noted that improved valuations after the correction, selective buying by fund managers, and early signs of a pickup in global demand are driving the renewed interest.
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The weight of the technology sector in March stood at 7.3%, up 40 basis points month-on-month but down 150 basis points year-on-year, according to a report by Motilal Oswal Financial Services.The report further highlighted that the sector’s weight was 6.9% in February 2026 and 8.8% in March 2025. On a monthly basis, weights in Healthcare, Technology, Utilities, Telecom, Consumer, Oil & Gas, Metals, E-Commerce, and NBFCs (non-lending) increased. However, the technology sector witnessed a 4% decline in value on a monthly basis.
Private banks, with a weight of 17.6%, remained the top sectoral holding for mutual funds in March 2026, followed by Automobiles (8.5%), Healthcare (7.8%), and Technology (7.3%).
Hold, add, or reduce exposure?
With the rise in allocation, should existing investors hold, add, or reduce exposure to tech funds? And is this the right time to enter these funds?
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Pathak said that existing investors can hold their positions if exposure is moderate and part of a diversified portfolio. New investors may consider a gradual entry through SIPs or STPs rather than lumpsum investments, while those with high sector exposure should review and rebalance if needed.Minocha said that current investors should hold their positions and consider increasing exposure during market downturns. He advised new investors to opt for SIPs or staggered allocations instead of lump sum investments, as the market lacks clear signs of sustained earnings recovery.
He further suggested that new investors stick to diversified funds such as flexicap funds and allow fund managers to take sectoral calls. Investors should avoid allocating a large portion of their portfolio to sectoral funds, especially those in currently spotlighted sectors.
Index vs mutual funds: Allocation in the tech sector
The BSE 200 had a total allocation of 8% to the technology sector, compared with 7.3% by mutual funds. Some fund houses — Aditya Birla Sun Life Mutual Fund, Franklin Templeton Mutual Fund, ICICI Prudential Mutual Fund, Motilal Oswal Mutual Fund, PPFAS Mutual Fund, Tata Mutual Fund, and UTI Mutual Fund — had higher allocations than the BSE 200.
Among these, PPFAS Mutual Fund had an 11% allocation, while Tata Mutual Fund had an 11.4% allocation.
In February, foreign institutional investors sharply reduced their exposure to IT stocks, selling shares in two phases. According to NSDL data, they offloaded around Rs 11,000 crore worth of IT stocks in the first half of the month and another Rs 5,993 crore between February 15 and 28.
Jefferies also downgraded multiple stocks, including Infosys, HCL Tech, and Mphasis to ‘Hold’, and TCS, LTIMindtree, and Hexaware to ‘Underperform’, slashing price targets by up to 33%.
Among key stocks, HCL Technologies declined 0.7%, with one fund having exposure above 2% and four funds above 1% in March. Wipro declined 7.9%. Infosys fell 1.6%, with 12 funds having exposure above 2% and 18 funds above 1%. TCS declined 8.3%, with one fund having exposure above 2% and nine funds above 1% in March.
Are global factors also influencing this surge?
Minocha said that the US technology sector has rebounded as interest rates remain stable and global technology companies report stronger earnings, boosting market confidence. He added that the export-driven Indian IT sector is significantly influenced by these international developments.
Echoing this view, Pathak said that global cues are indeed influencing sentiment. The recovery in US tech stocks, easing interest rate concerns, and expectations of improved corporate IT spending are positive for Indian technology companies.
Performance
In March, all tech sector-based funds remained in negative territory. Quant Tech Fund declined the most, losing around 13.36%, followed by Motilal Oswal Digital India Fund, which fell 10.23%.
Axis Nifty IT Index Fund was down 5.13% in March, followed by Bandhan Nifty IT Index Fund, which lost 5.12%. Edelweiss Technology Fund recorded the smallest decline of around 4.06%.
Over the past three months, tech sector-based funds have lost up to 20%, while over six months, losses have extended to as much as 25%.
Way ahead
Commenting on the weak performance of technology sector funds, Pathak said the sector’s outlook remains constructive but gradual. Near-term volatility may persist, but stability is improving. Over the long term, growth in global tech spending and themes such as AI and cloud computing are expected to support earnings.
Minocha said the outlook has improved, though a full recovery is not yet in sight. Growth is expected to accelerate in the coming quarters despite ongoing short-term volatility. He added that the sector is suited for investors with at least a four-year time horizon and a high risk appetite.
(Disclaimer: Recommendations, suggestions, views, and opinions expressed by the experts are their own and do not represent the views of The Economic Times.)
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