The Indian IT sector is navigating a period of intense volatility as of February 26, 2026. The Nifty IT index experienced a historic **21%** decline throughout the month, marking its steepest monthly contraction since the 2008 global financial crisis. This massive selloff was primarily ignited by rapid advancements from AI startup Anthropic. The launch of specialized tools capable of automating legal workflows and streamlining legacy **COBOL** code has raised urgent questions regarding the long-term viability of traditional IT service models. Market Performance and Valuation The Nifty IT index reached a significant low of **30,053** earlier this week, representing a **30-month** bottom. While the index showed a slight recovery of **0.89%** today to trade around the **30,797** level, the structural outlook remains cautious. Valuations for the sector have retreated to an eight-year low relative to the broader Nifty 500. Major firms are currently trading at price-to-earnings (P/E) multiples between **14** and **18** times, offering free cash flow yields of **4%** to **6%**. Disruption Risks and Stock Impact The primary catalyst for the "Software-mageddon" was Anthropic’s ability to target the high-margin maintenance of legacy systems. With an estimated **95%** of US ATM transactions still relying on **COBOL**, the automation of these processes threatens a core revenue stream for global and Indian providers. The impact on individual heavyweights has been severe: * **HCLTech** declined nearly **22%** over the past month. * **Infosys** and **TCS** saw single-day losses ranging from **4%** to **7%** following major AI announcements. * **Persistent Systems** and **Coforge** led intraday losses of up to **8%** during the height of the selloff. Strategic Shifts and Outlook Despite the downturn, some institutional analysts have shifted to an "Overweight" stance, viewing the correction as an entry point for long-term investors. They argue that the market has already priced in anemic growth scenarios, with potential three-year returns projected between **13%** and **25%** in a recovery case. The sector's resilience now depends on how quickly firms can pivot. Infosys recently announced a strategic partnership with Anthropic to develop enterprise AI solutions, a move that briefly triggered a **3%** relief rally. However, the broader trend shows foreign portfolio investors remaining net sellers of Indian IT stocks as they recalibrate for an AI-first economy. The industry is at a crossroads where legacy contract deflation must be offset by new AI transformation projects. Until clear strategies for AI enablement are proven, the sector is expected to face continued pricing pressure and scrutiny over billable hours.