IT stocks down 6%: What it means for your mutual fund portfolio

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IT stocks’ sharp fall puts tech fund investors at a crossroads, making portfolio balance and allocation discipline crucial.

IT stocks fall, IT mutual funds, tech mutual funds, SIP investing, portfolio rebalancing, Nifty IT index, AI impact on IT sector, lump sum investing

IT stocks had a rough day on the markets, and many investors felt the impact straight in their mutual fund portfolios. With big names like Infosys and TCS falling sharply and the Nifty IT index sliding over 6 percent in a single session, this move is no longer just a market headline, it’s a reality for retail investors with exposure to tech funds.

Over the past few years, tech and IT funds gained popularity on the back of digital transformation and AI optimism. But this sharp selloff has reminded investors that thematic bets can turn volatile very quickly.

Today’s fall isn’t about weak earnings or a global slowdown. Markets are reacting to fears that rapid AI advances could disrupt traditional IT business models at a time when valuations were already stretched. Since most tech mutual funds are heavily invested in a few large IT stocks, such sharp sector-wide falls quickly show up as NAV losses, with limited downside protection.

So after this sudden selloff, what should investors do now?

If tech funds form a small part of your portfolio

For investors where technology funds account for less than 10 percent of total equity exposure, experts say there is little reason to react emotionally.

“If tech exposure is under 10 percent, investors should treat this fall as a sectoral cycle and stay invested,” says Kirang Gandhi, Financial Mentor. He adds, “AI adoption is still evolving, and this correction offers a long-term opportunity rather than a reason to exit.”

At this level, experts say, even a sharp drawdown in tech stocks has a limited impact on overall portfolio value. When tech funds form only a small part of your portfolio, you can afford to observe how companies adapt to AI-driven changes without being forced into hasty decisions.

When tech exposure dominate the portfolio

The equation changes when technology funds account for 15-30 percent or more of the equity allocation.

“At higher exposure levels, technology stops being a theme and becomes a portfolio risk factor,” says Vijay Maheshwari, CWM and Founder, Stocktick Capital. He adds, “In periods of structural uncertainty, concentration must fall before conviction rises.”

Other industry experts also highlight the need for action at elevated exposure levels. Gandhi says, “If investors are overexposed through thematic tech funds, this is the time to rebalance. Concentration risk can hurt portfolios during prolonged disruption, and gradual diversification into flexi-cap or multi-asset funds helps reduce that risk.”

Importantly, experts stress that rebalancing does not mean exiting tech altogether. Reducing exposure gradually while maintaining a core allocation can help avoid timing risk while restoring balance.

What should SIP investors do?

SIP investors often assume that continuing investments automatically neutralises market risk. While SIPs help average costs, they do not eliminate the risks of valuation compression or business model uncertainty.

“SIP decisions should be driven by why the fund exists in the portfolio, not by recent price action,” Maheshwari says. He explains, “SIPs are designed for volatility, not for blind persistence when business visibility weakens.”

Industry experts say investors should evaluate whether their tech SIPs are still relevant. Gandhi adds, “SIP investors should avoid knee-jerk exits, but they must also review asset allocation. Investors should ask whether the fund is focused on legacy IT models or adapting to AI and automation.”

A simple rule of thumb can be followed: if tech funds account for no more than 10-12 percent of total SIP allocations, experts say continuing SIPs is reasonable. If that share exceeds 20 percent, rebalancing future SIP flows may be prudent.

Lump-sum investors: avoid blind averaging

For lump-sum investors who entered tech funds near recent highs, the temptation to average down after a correction can be strong. But experts caution that not all falls are equal.

Maheshwari says, “Averaging purely because prices are lower is not investing; it is anchoring. In disruptive phases, clarity beats cheapness.”

So, before adding more, look for signs of valuation comfort, earnings resilience and clear evidence that companies are adapting their business models to AI, rather than relying on optimistic commentary alone.

Gandhi advises patience. He adds, “Recent lump-sum investors should wait for stability. Monitoring valuation resets, earnings downgrades and global IT order flows is more important than rushing to add exposure.”

Takeaway for investors

The recent fall in IT stocks is a reminder that thematic investing can be rewarding, but it also comes with sharper ups and downs. Technology funds can still have a place in portfolios, but only in measured amounts and with clear expectations.

The real takeaway is not about guessing when IT stocks will bounce back. It is about ensuring your portfolio is balanced enough to handle uncertainty without forcing rushed decisions. Staying aligned with your goals, rather than reacting to headlines, is what ultimately helps ride through phases like this.

Courtsey To : Moneycontrol