The Indian IT sector is currently navigating a period of significant structural re-evaluation. The Nifty IT index has witnessed a sharp decline, shedding approximately 19.5% month-to-date and over 22% in the last year. As of February 24, 2026, the index is trading near 31,550, reflecting a deep valuation correction amid growing fears of AI-led disruption. Global brokerage Jefferies has issued a cautious outlook, downgrading major industry leaders. Tata Consultancy Services (TCS) and LTIMindtree have been moved to "Underperform," with target prices slashed to 2,350 and 4,300 respectively. Infosys and HCL Technologies have been downgraded to "Hold," with revised targets of 1,290 and 1,390. The primary concern is the potential for AI to cause "revenue deflation" in traditional managed services, which account for 22% to 45% of total revenue for large-cap firms. Analysts warn that in a worst-case scenario, sector valuations could see an additional 30% to 65% derating if growth continues to falter beyond the current fiscal year. In contrast to the large-cap struggle, a clear preference has emerged for mid-sized IT firms. These companies are viewed as more agile and better equipped to pivot toward new AI consulting and implementation opportunities. Top picks in this segment include Coforge, Sagility, and IKS, which are projected to deliver earnings growth of 19% to 25% through 2028. Coforge has recently faced its own technical pressures, with its share price trading around 1,288. However, it remains a favorite for its ability to secure faster growth compared to the 6% earnings growth expected for large-cap peers. Market participants are closely watching the 1,250 support level for Coforge as a critical marker for near-term momentum. Broadly, the Indian tech industry is still on a path to reach a 350 billion dollar valuation by late 2026, contributing nearly 10% to the national GDP. While the long-term outlook remains tied to cloud and data center expansion, the immediate market sentiment is dominated by the need for companies to overhaul their operating models to survive the AI-driven shift. Foreign institutional investors have recently shown mixed activity, though they were net buyers in early February following a major trade deal. However, the IT sector continues to lag behind broader market indices like the Nifty 50, which has remained relatively steady above the 25,500 mark. [Nifty IT Index Overview](https://www.youtube.com/watch?v=3u9-YNdSIU4) This video provides a deep dive into the specific drivers and bottlenecks facing the Indian IT sector in 2026. http://googleusercontent.com/youtube_content/0