Nifty IT index jumps 16.77% in July, funds bounce back

Technology mutual funds delivered an average return of around 14% in July, rebounding from a 6.40% decline in June. The Nifty IT index rose 16.77% last month, its strongest monthly performance in six years, reversing a 9.56% drop in June. Fund managers increased technology allocation in active portfolios from a record low of 5.9% in June to 6.6% in July.

Aditya Agarwal, co-founder of Wealthy.in, said the rally should be viewed as a sharp cyclical rebound rather than the start of a sustained upcycle. He attributed part of the gain to value buying and reversal of excessively negative sentiment, noting that a sustainable recovery requires improvement in deal wins, spending, margins, and earnings growth. Agarwal cautioned against treating the higher allocation as a standalone buy signal.

Agarwal recommended that investors not increase technology allocation solely because of the July rebound. For those with little IT exposure and a five- to seven-year horizon, staggered investments are preferable to lump-sum allocations. Risks remain, including slower global IT spending, currency movements, wage pressures, and AI-related disruption.