From Selloff to Shift: Why FPIs Are Pivoting Away from IT and Into Telecom

Foreign Portfolio Investors (FPIs) withdrew a massive ₹29,330 crore from IT stocks between January and April 2025—the largest sectoral outflow in that period. After a small inflow of ₹289 crore in early May, the trend reversed sharply, with ₹2,725 crore exiting in the latter half of the month.

At the same time, telecom stocks became the new favourite. The sector saw net inflows of ₹15,863 crore from January to April, with ₹7,052 crore pouring in just in the second half of May. Even the broader services sector attracted ₹6,210 crore between 16-31 May, hinting at selective bets amid market volatility.

So, what’s driving this dramatic shift? Let’s find out.

Reasons for Selloffs in the IT Sector

The following factors have led to FPIs moving away from the IT industry:

• Margin Pressure

There is a visible slowdown in global tech demand, particularly from the US and Europe, which accounts for major revenues. Companies like Infosys, TCS, and Wipro have reported slower project ramp-ups as clients reduce discretionary IT spending amid persistent inflation. This has weakened their deal pipelines and forced downward revisions in earnings guidance. For FPIs focused on future growth, these signals indicate compressed margins and limited near-term returns. As a result, capital is being reallocated.

• Shift in Outsourcing Preferences

Indian IT firms are facing structural changes as global clients shift to nearshoring and adopt AI-based automation, reducing the need for routine outsourced services. This has triggered a decline in outsourcing contracts, prompting FPIs to cut exposure to Indian IT stocks in anticipation of sustained revenue pressure.

• Poor Q4 Earnings

The timing of the FPI selloff aligns directly with the Q4 FY25 earnings season. Most major IT firms have reported disappointing quarterly results, with revenue stagnation and muted guidance. For example, TCS reported a 1.26% decline in their fourth-quarter net profit results for the financial year 2025 on a quarter-on-quarter basis. Similarly, Infosys experienced an 11.74% year-over-year decline in profit in March 2025.

Not only that, hiring freezes and workforce optimisation further hint at weak demand conditions. For FPIs who closely monitor quarterly earnings, this indicates not only present underperformance but also a lack of near-term recovery signals.

• Bond Yields

As long-duration yields in the US surged, risk-free returns improved, enticing FPIs to rotate out of equity, particularly sectors like IT. Rising bond yields create pressure on valuations and dampen equity risk appetite. With global borrowing costs rising, technology names have become less compelling compared to fixed-income alternatives.

Reasons for Pivot in the Telecom Sector

The telecom sector appears attractive to FPIs for the following reasons:

• Digital Expansion

The 5G rollout, supported by government investment in fibre networks and tower infrastructure, has made telecom an attractive sector for FPIs. With data consumption rising over 19.5% annually and enterprises increasingly deploying private 5G networks, the industry promises strong demand visibility. The telecom market is now largely dominated by three major players, which enables stable pricing and reduces churn.

• Stronger Earnings Visibility

Unlike the project-dependent revenue of IT firms, telecom companies operate on subscription models, providing consistent cash flows and stronger earnings visibility, which are traits that Foreign Portfolio Investors often prefer. Telecom’s recurring revenue from mobile and broadband users, combined with rising Average Revenue Per User due to tariff hikes and increased data usage, is boosting sector profitability.

• Innovation

Telecom firms are no longer just providers of connectivity. They are rapidly expanding into enterprise solutions, cloud services, fintech, and digital advertising. This business diversification is helping them unlock new revenue streams. Take, for example, Bharti Airtel. The company has recently launched fraud detection technology . This solution will immediately detect and block malicious websites, regardless of whether they are related to OTT platforms, social media platforms, or apps like WhatsApp or Telegram. Airtel has also launched ‘Business Name Display ’ for enterprises, which displays the brand name on the screen as soon as the user receives or dials a call.

• Limited Global Correlation

Unlike the IT sector, whose fortunes are heavily dependent on global economies, Indian telecom derives nearly all of its revenue from domestic consumers. This makes it less sensitive to global shocks. FPIs, amid uncertainty in the US and Europe, are seeking investment avenues insulated from foreign economic turmoil.

Conclusion

This FPI rotation appears to be more than a tactical play. The intensity of the IT selloff and the simultaneous targeted inflows into telecom point toward a strategic portfolio rebalancing. While short-term triggers, such as weak IT earnings and margin stress, explain the timing, the structural growth drivers in telecom suggest a longer-term commitment.

Domestic investors should closely monitor this trend. It signals a sectoral realignment based on digital infrastructure, domestic consumption, and regulatory clarity, all of which favour telecom as the next growth frontier.