In early February 2026, the Indian IT sector faced a massive valuation wipeout, losing over $50 billion (approximately ₹4.2 lakh crore) in market capitalization within just the first two weeks of the month.
The sell-off was so severe that by mid-February, Foreign Institutional Investor (FII) holdings in the sector dropped to a four-year low of ₹4.49 lakh crore.
The “AI Shock” and Market Erosion
The primary trigger for this rout was the “Anthropic shock”—the launch of an enterprise-focused AI tool by the startup Anthropic that demonstrated advanced automation for tasks like legal compliance and complex coding. This intensified global fears that the traditional “headcount-led” model of Indian IT is being structurally disrupted.
- Nifty IT Index: Plunged 14% in the first half of February 2026, touching 10-month lows.
- Weekly Rout: In one of the sector’s worst weeks (ending Feb 13), the Nifty IT index fell 8.2%, wiping out massive value across frontline stocks.
- Total Market Cap Loss: Across just eight trading sessions in mid-February, the broader IT sector saw a loss of over ₹6 lakh crore in market value.
Impact on Top IT Giants
The “Big Six” bore the brunt of the institutional exit, with some stocks hitting their lowest valuations in years.
| Stock | Market Cap Erosion (Feb Week 2) | Feb Performance (to date) |
| TCS | -₹90,198 Crore | -14.0% |
| Infosys | -₹70,780 Crore | -16.5% |
| HCL Tech | ~-₹40,000 Crore | -14.2% |
| Wipro | ~-₹25,000 Crore | -10.0% |
| Tech Mahindra | -₹18,500 Crore | -12.0% |
Why the Sudden Panic?
While IT has been under pressure for a year, several factors converged in February 2026 to create a “perfect storm”:
- Structural Disruption Fears: A report from JPMorgan titled “Looking Through the AI Fog” suggested that Indian IT is in its third year of below-par growth, with generative AI potentially impacting 25–30% of traditional application maintenance and testing revenues.
- Margin Compression: Investors fear that as AI tools increase productivity, clients will demand lower pricing, leading to a “race to the bottom” that compresses the historically high margins of Indian firms.
- FII Capitulation: FIIs, who once viewed Indian IT as a “safe haven,” sold over ₹10,950 crore in IT stocks in early February alone, rotating that capital into “hard” assets like Capital Goods and Energy.
- Domestic Impact: Mutual funds saw a notional loss of over ₹50,000 crore in their IT portfolios by mid-February, though domestic institutions (DIIs) have largely remained “buyers on the dip” to provide some support.
The Counter-Narrative
Despite the panic, some analysts (including those from HSBC and Centrum Broking) argue the market has overreacted. They maintain that large-scale AI deployment still requires “digital plumbing”—the complex integration and data work that Indian IT firms excel at—and that the sector is simply transitioning from a “headcount model” to an “outcome-led model.”
