Blame it on IT bellwether Infosys slashing its guidance for the current fiscal year or analysts' bullish view of the sector, foreign institutional investors (FIIs) seem to be less interested in software stocks.
The combined valuation of listed information technology (IT) firms dropped by 2.3% on Monday, with Infosys witnessing a 1.1% fall in FII investment in the first quarter of the current fiscal year against the fourth quarter of the last fiscal.
According to the company's share price on Monday, FIIs have reduced their exposure in the company by Rs 1,410 crore.
"There has been some profit booking happening as far as FIIs are concerned, but in the long term the India story remains intact," said Alex Mathew, research head, BNP Paribas Financials. "While for IT companies, Monday's fall was due to a rising rupee, FIIs tend to take a longer view and the sector is still attractive as far as margins are concerned.
Indian IT companies have been benefiting from the depreciating Indian currency but profits have been declining. Infosys recently posted a quarterly result that was below the company's guidance.
Other IT companies too managed to up their net profits but the revenues from Europe and the US remained under pressure.
FIIs are now, therefore looking at other sectors.
FIIs increased their presence in Tata Group firm TCS by 0.6% in the current quarter against the last quarter.
Of the 16 Sensex companies, FIIs reduced their holdings in last three months in 11 companies.
"The stock market has been volatile in the past six months and FIIs have been net sellers in the second quarter. The FII inflow or outflow would now mainly depend on India's macro economic environment," said Vicky Nichani, director, Moneyore, a broking firm.