IT stocks are falling, should you invest in tech funds now?

The Nifty IT index extended its losses, falling over 4 percent at around 12:30 pm on Friday, sharply underperforming the broader market.

Heavyweights like Infosys, HCL Tech, TCS, Tech Mahindra and Wipro declined between about 1.5 percent and over 4 percent, while midcap IT stocks such as Coforge and Mphasis also dropped around 3 percent, showing the selling is widespread across the sector.

The sharp fall in IT stocks has left many investors asking a simple question: is this a good time to step in, or better to wait?

The recent fall is not just a one-day move. IT stocks are down nearly 19 percent so far this year and over the past three months, even as longer-term returns remain positive at around 5-8 percent over three to five years.

What’s behind the fall?

Industry experts say the pressure on IT stocks has been building over the past week. Along with muted earnings, companies have given cautious growth guidance, pointing to slower client spending, delayed decision-making and weaker deal momentum.

Apoorva Khandelwal, Associate, IT sector at Anand Rathi Institutional Equity, says, “The weakness is coming from both domestic and global triggers. On one hand, Indian IT companies have reported softer-than-expected results and conservative guidance. On the other, sharp declines in global tech stocks, despite decent earnings, have raised concerns around slowing growth and the impact of AI-led disruption.”

He further adds, “This combination has amplified concerns around near-term growth. Even as companies win large AI-led deals, pricing pressure in traditional services is increasing, leading to what experts describe as ‘revenue deflation’.”

The pressure is also visible in how IT stocks are trading right now. Mayank Jain, Market Analyst at Share.Market (PhonePe Wealth) explains, “The sector is facing a ‘perfect storm’, where strong profits are being offset by weak growth visibility.”

He adds, “From a market perspective too, the trend remains weak, with the Nifty IT index in a clear downtrend and no strong signs of a bottom yet. Short-term investors should avoid jumping in too early, as it can be similar to ‘catching a falling knife’.”

Should you invest now or wait?

Experts are divided on timing, but broadly agree on a cautious, phased approach.

Vijay Maheshwari, founder of Stocktick Capital, says “The recent correction, around 20-25 percent this year, has made valuations more reasonable. However, growth visibility remains weak in the near term due to global uncertainty and AI-led disruption.”

He suggests investors to avoid lump-sum bets and instead take a staggered route through SIPs or STPs into quality tech funds. “This is not a panic-exit phase, but also not a time for aggressive buying, as returns are likely to be selective over the next couple of years,” adds Maheshwari.

Other experts also see value emerging, especially in large-cap IT names. Khandelwal  suggests, “Investors can start accumulating selectively on dips, as the long-term growth story remains intact. As enterprise adoption of AI picks up, large IT companies are well placed to benefit, though near-term volatility may persist.”

The broader takeaway

While the correction has improved entry points, uncertainty around growth and global cues means patience is key.

Rather than trying to time the exact bottom, gradually building exposure may be a more balanced approach.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.