Technology Funds Drop in IT Rout 2026
Over the past month, I’ve been closely watching the performance of technology stocks and the corresponding impact on technology mutual funds. And honestly, what I’ve observed has reinforced one of the most important lessons I’ve learned as an investor: sector concentration can amplify both gains and losses.
For anyone invested in tech-heavy mutual funds, this year has been a stark reminder. Technology funds have taken a sharp hit, with some schemes falling more than 15% in just a few weeks. I’ve noticed that even funds that delivered double-digit returns over the past three years are now showing losses of 8–16% on a one-year basis.
In this article, I will explain why sector-focused funds could experience steep downtrends, also note how diversified funds such as large-cap and flexi-cap schemes absorb downside risk, and provide practical takeaways about balancing your bets on sectors while being invested in a broad market perspective.
The Reality Behind the Numbers
To give you some context, mutual funds collectively have faced substantial losses in technology stocks this year. I dug into the numbers, and it’s eye-opening: large players like Infosys and TCS alone have caused mutual fund losses worth nearly ₹41,000 crore. Insurance giant LIC has also reported losses close to ₹42,500 crore in the sector.
It’s easy to forget that while these companies have been strong performers historically, sectoral concentration means that when momentum falters, the effect is magnified. This is particularly true for technology funds, which, under SEBI rules, invest approximately 80% of their portfolio in a single sector. That kind of focus is a double-edged sword.
If you compare this with broader indices, the difference is striking. The Nifty 50 TRI, for instance, showed modest gains over the past month, even as tech shares corrected sharply. Large-cap and diversified funds have fared far better in cushioning the downside, and I’ve personally felt the difference in my own portfolio.
Why Diversification Matters More Than Ever
Observing this correction unfold has reaffirmed my faith in diversified investing. However, I have always kept an allocation in my overall equity portfolio for flexi-cap and large-cap funds as they offer the flexibility to rotate across sectors and market caps.
Particularly during a volatile period, flexi-cap funds have shown to be worth it in their category. They enable fund managers to dynamically hedge exposure and consequently tend to experience reduced drawdowns relative to their sector-specific brethren. For instance, my technology funds were down 11–18% YTD, but my flexi-cap holdings were only showing mild declines around 2–3%.
In hindsight, it’s apparent why more experienced investors often regard sector funds as a satellite allocation: they can provide strong returns over extended cycles when things go well, but their concentrated nature makes them more vulnerable to sharp corrections. I’ve come to think of them as just another part of my portfolio, where conviction is supported by data and regular monitoring, rather than simply hype or trending news.
My Observations on Sector vs. Diversified Funds
What I’ve found interesting is that technology funds are extremely cyclical. In my personal experience, they tend to react strongly to macroeconomic news, earnings results, or global tech trends. For instance, the recent global technology selloff, coupled with rising concerns about valuations, led to a near 20% drop in the sector index in just one month, the steepest since September 2008.
By contrast, diversified funds provide a cushion. Large-cap and flexi-cap funds didn’t experience anywhere near the same level of volatility. Over one year, many large-cap schemes delivered 12–16% returns, even as tech-heavy funds struggled in the red. This difference underscores one of the lessons I’ve internalised over the years: spreading your risk across sectors can help you sleep better during market turbulence.
Also Read: Unlocking the Strong Potential of Mid-Cap Mutual Funds: 3 Top Performers Over 10 Years
Learning from the Past
I can’t help but compare it with past market corrections. Technology stocks saw years of declines during the dotcom bust, and infrastructure stocks were slower to recover after 2008 than in a normal cycle, taking more than a decade to return. In contrast, diversified portfolios tend to recover within two to three years following a fall, which is consistent with what I’ve seen in my investments.
It’s not like I’ve given up on sector funds. On the flip side, I still see merit in them, albeit as a dwindling satellite allocation within a wider-ranging, diversified portfolio. By limiting exposure and tightly timing allocations, I’ve been able to join rallies in potential sectors while hedging on the downside.
How I Approach IT Sector Corrections
Here’s how I personally navigate technology focused investments:
- Stay calm and avoid panic selling: A correction is a part of market cycles. Having to sell in a panic usually locks in losses. Then I keep on reminding myself that markets have always bounced back over time, but again, especially if the portfolio is diversified.
- Review allocations: I look to see if my sector funds still measure up with how much risk I can take and what financial goals I have. If exposure gets too high, I will rebalance.
- Focus on data, not headlines: It’s tempting to react to every news item. Instead, I focus on fundamentals such as revenue growth, profit margins, and valuations.
- Leverage diversified funds: My flexi-cap and large-cap funds act as an anchor during turbulent periods, as these funds are far more stable than mid- or small-caps; I still earn gains from them when the market moves upwards.
- Use sector funds strategically: I use it as a “satellite investment” which has higher potential returns, but keep its weightage moderate.
Through this approach, I have been able to ride past corrections without having doubts if my long-term strategy is correct.
Why This Matters for You
If you happen to be an investor in technology mutual funds, I want to make sure that you realise corrections like these, painful as they are, don’t give the average investor a reason to totally give up on sector investing. Instead, they are an important reminder to temper conviction with diversification.
For those looking to explore diversified options, I often recommend looking at flexi-cap funds or broad-market ETFs.They open exposure to various sectors while mitigating portfolio volatility.
My Takeaway: Sector Investing Isn’t Wrong, But Timing and Allocation Are Key
The most important thing I’ve learned from the recent technology sector correction is simple: sector-weighted strategies can produce very high rewards, but they’re also risky because you have concentrations. Diversified funds don’t offer the most spectacular gains during rallies, but they will shelter your portfolio from slumps and often rebound faster. So in a nutshell, my strategy is still one of core-satellite investing wherein I will try to own as many of the right companies, with lots of diversification within other segments for stability, then have satellite holdings focused on sectors based on whether the economy is likely to contract or expand that can outperform.
As I always remind readers, investing is a marathon, not a sprint. Technology funds will recover, but patience, diversification, and careful allocation are what help long-term portfolios stay on track.
Also Read: IT Stocks Drop 3% Amid Surging AI Concerns
Disclaimer
The opinions expressed in this article are my own and do not constitute financial advice. Before making investment decisions, please consult a certified financial advisor. Returns of mutual funds or indices in the past do not indicate future returns.
