While foreign institutional investors have been trimming their Indian technology holdings over the past two years, domestic institutional investors have been taking the opposite approach. According to reports from The Financial Express, Domestic Institutional Investors (DIIs) have increased their stakes in AI-focused companies, with their holdings in Cyient jumping from 27% to 41% and in Persistent Systems rising from 28.23% to 30.47% during the same period. This contrasts sharply with foreign investors, who reduced their holdings in Cyient from about 31% to 15% and in Persistent Systems from 31% to 27% over the same timeframe. The latest data shows even more dramatic quarterly changes, with Cyient's DII holding increasing from 27.08% in June 2024 to 40.98% in March 2026, while Persistent Systems' DII stake rose from 28.23% to 30.47% during the same period. Top DII holders include HDFC Tax Saver Fund, DSP Regular Saving Fund, ICICI Prudential India Opportunities Fund, Kotak Smallcap Fund, and Life Insurance Corporation of India for Cyient, while Motilal Oswal Midcap Fund, HDFC Mid-Cap Fund, Kotak Midcap Fund, Nippon India Growth Fund, and Aditya Birla Sun Life Flexi Cap Fund are major stakeholders in Persistent Systems.
Cyient, based in Hyderabad with a current market cap of ₹9,950 crore, operates as an engineering and technology firm specializing in detailed design work for aircraft, trains, telecom networks, medical devices, and increasingly computer chips. As reported by The Financial Express, the company has two AI-focused business segments: hardware through its semiconductor arm designing custom chips for data centers and specialized devices, including application-specific processors for machine learning, and software through its own generative AI tools like Coddy and CyFAST. The company agreed to acquire TAO Digital for approximately $218 million in June 2026, adding over 3,500 staff to its AI capabilities. However, recent financial performance shows challenges with sales barely moving in FY26 while both EBITDA and net profit actually fell, driven by weaker demand and thinner margins. The company's debt-to-equity ratio of 0.08 makes it virtually debt-free, while it maintains a 5-year sales CAGR of 12% and net profit CAGR of 5% from ₹4,132 crore in FY21 to ₹7,268 crore in FY26.
Persistent Systems, based in Pune with a market cap of ₹74,300 crore, focuses on software services for banking, healthcare, and technology sectors, positioning AI as the center of its business strategy. According to The Financial Express, the company reported sales growth of 29% CAGR from ₹4,188 crore in FY21 to ₹14,748 crore in FY26, with EBITDA growing at 33% CAGR and net profit rising at 33% CAGR over the same period. The company recently announced the acquisition of Nagarro for 1.27 billion euros to expand its European footprint and target $2 billion in annual revenue by FY27. Persistent Systems works closely with major platform owners like Microsoft, Amazon, and Salesforce, and has partnered with IIM Ahmedabad on a framework to help companies measure AI spending returns. The company maintains strong financial metrics with return on capital employed (ROCE) of 34% and a debt-to-equity ratio of 0.06.
Both companies have experienced significant stock price corrections despite their AI focus. As reported by The Financial Express, Cyient's share price has declined 64% from its all-time high of ₹2,459 to ₹895 as of July 3, 2026, while Persistent Systems has dropped 30% from its all-time high of ₹6,789 to ₹4,710. The stocks currently trade at different valuations, with Cyient at 21x PE against the industry median of 24x and Persistent Systems at 39x PE compared to the industry median of 22x. Cyient maintains a debt-to-equity ratio of 0.08 while Persistent Systems has a debt-to-equity ratio of 0.06. Persistent Systems shares have gained over 240% in five years, rising from approximately ₹1,380 in July 2021 to ₹4,710 as of July 3, 2026, before correcting from its all-time high of ₹6,789 in December 2025. The correction was largely attributed to concerns about the integration of the Nagarro acquisition, with at least one brokerage cutting its rating on margin blending risks.
According to The Financial Express, domestic fund managers appear to be positioning for the long-term AI transformation despite near-term challenges. Cyient offers a cheaper valuation and AI turnaround potential but faces recent profit decline, while Persistent Systems provides proven growth at a premium valuation with integration risks from the Nagarro acquisition. The analysis suggests that while both companies serve essential AI infrastructure roles, investors must weigh turnaround potential against proven performance when considering these investments. Cyient represents a turnaround bet with cheaper valuations but recent profit shrinkage, while Persistent Systems offers proven performance at a premium but carries integration risks from its large overseas acquisition. The funds' continued buying despite recent corrections indicates confidence in the AI theme, though investors must consider the execution risks associated with each company's growth strategy. The current market conditions reflect a 'picks and shovels' AI trade where domestic funds are backing companies that supply essential AI infrastructure components rather than direct AI applications.
