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IT Stocks Catch The “AI” Bug

“What doesn’t kill you, makes you stronger”

-          Friedrich Nietzsche, 19th Century German Philosopher

IT Stocks are being hammered on almost daily basis. “AI” seems to have given serious “infection” to IT companies and doomsday predictions for most of the organizations abound. NIFTY IT index as on 21 Feb 2026 is down nearly 16% in a month and 19.84% in year. On the contrary, broader Nifty 500 index is up 2.04% in a month and by 13.37% in a year. One following a broad market indexing strategy using Nifty 500 index fund has been spared the sectoral downturn reflected in IT stocks.

And that’s what diversification is all about.

That said, is it time to take a contrarian call and buy some IT stocks? Or rather than go for individual stocks, introduce IT index fund to your portfolio and build a diversified holding of IT companies? The latter approach looks better to me as it takes the guesswork out of which company handles the AI threat better. And as a bonus – do understand index is very brutal: if the existing constituents don’t do well in market capitalizations terms, new companies can very well enter the index and replace the underperformers in due course. The investor gets these holdings without any effort and tax cost.

Ohh, and you also realize that the bottom may not have been tested yet. But then, the contrary may also be true. Recovery maybe round the corner. Here is how I would go about balancing both the scenarios:

-          Budget a capital to be deployed into IT Index fund. Say 10 Lacs. I have put a random number here. More sophisticated approach is to decide upon capital as a percentage of your overall assets

-          25% of this to be immediately deployed into selected fund. This much will give one a reasonable shot at any immediate upside while shielding large part of capital from further downside

-          Build a plan to raise holding level to 100% of capital allocated within 6 months or maximum one year as I feel this much time period is good enough for all future expectations to be factored in by the markets

This is a simple formula investing plan to build exposure into a sector which is out of favour and has seen some market correction. Whether IT sector stocks go down further or rebound, you get to build focussed exposure in a sector without second guessing which way things will go.

 And before you decide to take the plunge, exercise due caution – sectoral or any other focussed approach is way more “risky” than broad market indexing. And there is no guarantee that such approach will assuredly do better than continuing with Nifty 500 broad market index!!!

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