PPFAS Flexi Cap Fund Raises Exposure to Technology Companies as Sector Valuations Hit Multi-Year Lows

While investors across the globe worry that artificial intelligence (AI) could disrupt the traditional outsourcing business model, India's largest actively managed equity fund is taking a contrarian approach. PPFAS Mutual Fund's flagship Flexi Cap Fund has increased its exposure to information technology stocks, betting that the market's pessimism has gone too far and that the recent correction presents an attractive long-term investment opportunity.

The move comes at a time when Indian IT stocks have suffered one of their steepest declines in recent years, with concerns over AI-driven automation, slowing global technology spending, and cautious corporate budgets weighing heavily on investor sentiment.

Contrarian Investing at a Time of Peak Pessimism

Successful long-term investing often involves buying quality businesses when market sentiment is weak. That appears to be the strategy adopted by PPFAS Mutual Fund.

The ₹1.28 lakh crore (approximately $14.9 billion) Flexi Cap Fund has gradually increased exposure to technology stocks over the last three months while simultaneously deploying cash that was previously parked in debt and money-market instruments.

Fund managers believe the market is overestimating the risks posed by AI while underestimating the adaptability and resilience of India's leading IT services companies.

According to the fund's management, AI is more likely to transform the outsourcing industry than destroy it.

AI Seen as an Opportunity Rather Than a Threat

The emergence of generative AI has sparked fears that software coding, testing, maintenance, and business process services could increasingly be automated, reducing demand for traditional IT outsourcing.

These concerns have triggered a broad selloff across technology stocks globally.

However, PPFAS believes the narrative has become excessively negative.

Industry experts argue that while AI can automate repetitive tasks, it also creates new demand for digital transformation, cloud migration, cybersecurity, AI implementation, and enterprise technology modernization.

Instead of eliminating IT services providers, AI could help improve productivity and margins while creating new revenue streams.

Many companies are expected to seek external expertise to integrate AI into their operations, creating fresh opportunities for technology service firms.

Nifty IT Index Suffers Worst Year Since Global Financial Crisis

The technology sector has emerged as one of the weakest performers in the Indian stock market during 2026.

The Nifty IT Index, which includes major players such as TCS, Infosys, HCL Technologies, Wipro, and Tech Mahindra, has fallen more than 27% this year.

The decline marks the sector's worst annual performance since the global financial crisis of 2008.

Investor concerns intensified after several global technology companies and consulting firms highlighted uncertainty in discretionary spending and AI-related business transitions.

The correction has erased significant market capitalization and pushed valuations to levels not seen in years.

Falling Valuations Attract Value Investors

One of the key reasons behind PPFAS's increased exposure is the significant reduction in sector valuations.

The Nifty IT Index currently trades at approximately 15.7 times forward earnings, compared with around 21.2 times a year earlier.

This sharp valuation correction has brought several industry leaders into what fund managers consider an attractive investment zone.

Historically, periods of extreme pessimism and compressed valuations have often provided favorable entry points for long-term investors willing to look beyond short-term uncertainties.

Infosys and HCL Technologies Among Key Bets

Technology remains one of the largest sector allocations within the PPFAS Flexi Cap Fund.

According to the latest portfolio disclosures, the fund has nearly 19% exposure to the technology sector, with Infosys and HCL Technologies featuring among its top holdings.

The fund's investment philosophy focuses on businesses with:

• Strong cash generation
• Sustainable competitive advantages
• Healthy balance sheets
• Predictable earnings
• Long-term growth visibility

Fund managers believe many leading IT companies continue to possess these characteristics despite current market concerns.

Cash Deployment Signals Growing Confidence

Over the past year, PPFAS had increased allocations to debt and money-market instruments due to a lack of attractive equity opportunities.

However, recent market corrections have encouraged the fund to redeploy capital into equities.

Debt and money-market allocations have declined to approximately 14% of the portfolio, while core equity exposure has risen to nearly 70%.

Apart from technology, the fund has also increased exposure to:

Financial Services

Banks and financial institutions continue to benefit from India's strong credit growth and formalization of the economy.

Utilities

Stable cash flows and predictable earnings make utilities attractive during periods of market uncertainty.

Coal and Energy Businesses

Energy demand growth and favorable cash-flow profiles continue to support investment opportunities in select companies.

Foreign Investors Continue to Exit Indian Markets

The fund's buying activity comes against the backdrop of significant foreign investor selling.

Foreign portfolio investors have withdrawn nearly $30 billion from Indian equities so far in 2026 as global investors shift capital toward markets perceived to offer better valuation opportunities.

This selling pressure has contributed to the correction across several sectors, including technology.

However, domestic institutional investors and mutual funds have continued to absorb much of the selling, helping stabilize the broader market.

Why India's IT Sector Remains Structurally Strong

Despite near-term challenges, analysts believe India's IT services industry retains several structural advantages:

Global Delivery Model

Indian companies continue to enjoy cost advantages compared with Western competitors.

Deep Talent Pool

India remains one of the world's largest sources of technology professionals and engineering talent.

Digital Transformation Demand

Businesses globally continue to invest in cloud computing, cybersecurity, analytics, and enterprise software.

AI Adoption Opportunities

The implementation and management of AI solutions could create entirely new revenue streams for IT service providers.

These factors could help the industry navigate technological disruption and maintain long-term growth.