What the ₹8,600 Cr. Infosys Selloff Reveals About India’s IT Sector

A dramatic shift took place in stock markets where Infosys Ltd, one of India’s leading IT companies, went through one of the most notable institutional stock exits in recent times. During December 2025, mutual funds in India sold Infosys shares worth ₹8,624 crore. This made it the most divested stock among mutual fund portfolios for that month. This sharp selloff, along with the company’s subsequent operational turnaround and renewed investor optimism, has become a focal point for market analysts and participants. Let’s understand what happened further.

What Happened? The ₹8,600 Crore Mutual Fund Exit

This resulted in a sharp fall in the share price of Infosys, approximately 14% over the course of 2025. This created broader concerns about growth momentum in the Indian IT sector and macroeconomic uncertainties.

Mutual funds generally adjust their equity holdings based on factors such as relative sector performance, earnings visibility, and macroeconomic outlook. But this unusually large divestment in Infosys signalled a risk-off posture by institutional managers - either profit taking from earlier gains or a flight toward perceived higher-growth or higher-visibility assets within the market.

A Weak Performance Streak in Context

Due to seasonal softness in IT spending, pricing pressures, and fewer deal closures in 2025, Infosys' stock had lagged behind some of its competitors. This slower pace created doubts among investors, and this was more evident after global brokerages took a cautious stance. For Example, Morgan Stanley cut its rating and even reduced its price target.

Infosys’ Q3 FY26 Earnings and Raised Guidance: The Turning Point

Even after the selloff, the narrative began to change when Infosys released better-than-expected Q3 FY26 earnings later in the quarter. The company reported revenue of $5.1 billion, representing a quarter-on-quarter increase of 0.6% in constant currency (CC) terms, surpassing the street estimates. Even management increased its FY26 constant-currency revenue growth guidance to 3-3.5%, up from an earlier forecast of 2-3%.

This upgraded outlook gave investor confidence. It suggested improving visibility ahead of the crucial March quarter and also hinted at momentum returning to the business. Especially in high-growth areas like digital transformation and artificial intelligence (AI) services.

Analyst Response: Cautious Optimism

Market analysts gave a positive response to Infosys’s upgraded guidance and earnings beat. One Brokerage house raised its target price for Infosys to ₹2,200 per share with a Buy rating on the belief that the company may gain due to rising AI spends. They also further projected that growth could accelerate to over 6% year-on-year in organic CC terms in FY27, a sharp rise from the earlier subdued cadence.

Some other leading brokerage houses have also increased their target price estimates while acknowledging that the growth trajectory has improved. One of them, in fact, raised its estimates and sees recurring earnings per share growing around 7.5% annually between FY26 and FY28 based on current trends.

Conclusion

Infosys’ recent market journey emphasises the shift from heightened caution to cautious optimism. Due to a sharp institutional selloff, the stock’s modest recovery of around 4% in early 2026 and its stabilisation above 2025 lows indicate that investors are again gaining confidence. This is again supported by improved earnings visibility and clearer guidance. Short-term volatility still exists, but the ease of mutual fund selling pressure indicates that the worst of the sentiment-driven correction may be over.

The company’s unprecedented ₹18,000 crore share buyback has bolstered this narrative, highlighting management’s faith in long-term value. However, the promoters’ choice to abstain from the offer has prompted varied interpretations regarding capital allocation strategy.

Investors can learn from this Infosys episode that in large-cap IT stocks, institutional flows can swing sharply in the short term, but fundamental earnings and growth clarity remain the main drivers. As Infosys enters the next phase, its turnaround thesis will hinge on consistent execution rather than sentiment alone.

Sources

Financial Express
Economic Times
News18