Indian IT stocks suffered one of their most violent monthly drawdowns in years as AI disruption fears turned into a full-blown institutional de-risking event.
The Nifty IT index crashed 21% in February, wiping out over ₹2.4 lakh crore in market capitalisation, after a rapid-fire sequence of AI tool launches by US-based startup Anthropic triggered global algorithmic sell programs, FII sector exits, and valuation multiple compression across large-cap IT names.
This was not an earnings-driven correction — it was a structural re-rating shock, as traders recalibrated the future revenue model of human-led IT services in the face of agentic AI automation.
Why IT Stocks Crashed — The Exact AI Trigger Timeline
| Date | Anthropic Trigger | Market Reaction |
|---|---|---|
| Feb 4 | Claude Cowork plug-ins automate legal, sales, marketing & analytics workflows | Nifty IT -6%, ₹2L cr wiped out |
| Feb 6 | Claude Opus 4.6 handles complex financial research | IT extends losses, 3-day fall ~8% |
| Feb 12–13 | Claude Enterprise made directly purchasable | Index -6.9% in 2 days |
| Feb 18 | AI-native web search + code execution launched | IT -1% |
| Feb 23 | Claude Code auto-debug & auto-fix | IT -1.4% |
| Feb 24 | AI claims ability to modernise COBOL | IT -5%, IBM -13% (worst in 26 yrs) |
This sequence created a cascading valuation shock — triggering forced deleveraging by FIIs and sector-wide multiple compression.
Real Money-Flow Logic: Why Institutions Sold Aggressively
Structural Fear Trigger
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40–70% of Indian IT revenues come from manpower-driven outsourcing.
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Anthropic’s tools demonstrated direct automation of core billable services:
Legal ops • Compliance • Data processing • Coding • Debugging • Legacy system modernisation.
Institutional Response Pattern
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FII long unwinds in IT futures
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Rotation into BFSI, metals, defence & PSU banks
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Algorithmic sell triggers activated once Nifty IT broke 31,200 support
Valuation Reset Math
| Factor | Pre-Feb | Post Shock |
|---|---|---|
| IT PE Multiple | 26–29x | 21–23x |
| Growth Premium | Stable | Structural risk discount |
| Risk Weight | Low | Medium–High |
Quantified Damage: What Got Hit the Hardest
| Stock | Peak to Feb Low Fall |
|---|---|
| Infosys | -24% |
| TCS | -19% |
| Wipro | -27% |
| Tech Mahindra | -31% |
| LTI Mindtree | -29% |
Sector Market Cap Erosion: ₹2.4 – ₹2.7 lakh crore in 4 weeks.
Why Today Matters
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COBOL automation directly attacks multi-year legacy transformation contracts — one of India IT’s highest-margin segments.
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This converts AI risk from theoretical to executable reality, forcing portfolio rebalancing by long-only institutions.
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Short-term relief rallies now face supply from trapped institutional longs.
Sector Rotation Impact: Where the Money Is Moving
| Sector | Flow Direction | Reason |
|---|---|---|
| PSU Banks | 🟢 Inflow | Valuation + rate cycle comfort |
| Metals | 🟢 Inflow | China stimulus + infra demand |
| Defence | 🟢 Inflow | Budget + order visibility |
| IT | 🔴 Outflow | Structural disruption fear |
| New-age tech | 🔴 Volatile | AI uncertainty |
High-Conviction Trade Scenarios (Probability Framed)
Scenario 1 — Technical Relief Rally (40% Probability)
Trigger: Nifty IT holds 29,600–29,800 support
Upside Zone: 31,100 – 31,500
Strategy: Short-covering bounce → Sell-on-rise
🔴 Scenario 2 — Structural Trend Breakdown (60% Probability)
Trigger: Weekly close below 29,500
Downside Targets:
➡ 28,200
➡ 27,300 (next major support zone)
Strategy:
➡ Bear market rallies
➡ Sell near resistance
➡ Focus on stock-specific shorts
Stock-Level Tactical Zones (Trader-Focused)
| Stock | Support | Resistance | Trade Bias |
|---|---|---|---|
| Infosys | 1,450 | 1,560 | Sell-on-rise |
| TCS | 3,480 | 3,650 | Range-bound bearish |
| Wipro | 395 | 425 | Weak structure |
| Tech Mahindra | 1,180 | 1,265 | High beta short |
Strategic Market Insight: What Changes Long-Term
This event marks India IT’s first true AI-driven valuation reset cycle, similar to:
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Pharma USFDA shocks (2015–2016)
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NBFC IL&FS crisis (2018)
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Tech SaaS collapse (2022)
Only IT companies that demonstrate AI monetisation + margin expansion will regain premium valuations.
Final Trader Take
This is not a normal correction. It is a structural re-rating cycle.
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Expect high volatility
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Dead-cat bounces likely
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Sustainable upside only after AI-led business clarity emerges
Trading Stance:
➡ Sell rallies
➡ Avoid long-term averaging
➡ Focus on rotational alpha sectors
FAQs
Q1. Why did Indian IT stocks crash in February 2026?
Because Anthropic’s AI tools showed direct automation of IT services, triggering institutional sell-offs and valuation resets.
Q2. How much wealth was erased from IT stocks?
Over ₹2.4 lakh crore in 4 weeks.
Q3. Is this correction or structural damage?
This is a structural valuation reset, not a routine earnings correction.
Q4. What should traders do now?
Sell-on-rise strategy until Nifty IT regains 31,500 decisively.
Q5. Which IT stocks are most vulnerable?
High manpower-dependent firms: Tech Mahindra, Wipro, mid-cap IT services.
