Market Brief: Indian IT Sector Resilience & AI Transition The Indian IT sector is navigating a period of intense structural shift. As of **February 20, 2026**, the **Nifty IT Index** has seen a sharp correction, trading around the **32,200** level. This represents a decline of approximately **15%** over the last month and over **21%** on a year-on-year basis. Investor sentiment remains cautious as the industry moves from traditional service models to AI-driven frameworks. High-profile warnings from global venture capitalists suggest that traditional outsourcing and BPO services could face near-total disruption within the next **5 years** as AI agents begin to outperform humans in core expertise-based tasks. Capital Allocation and R&D Concerns Critical internal debates center on how IT giants utilize their cash reserves. Analysts note a trend of heavy shareholder payouts through dividends and buybacks rather than aggressive reinvestment. Currently, India’s gross expenditure on R&D remains low at roughly **0.65%** of GDP, significantly trailing global peers like China and the US. In the most recent earnings cycle, large-cap firms reported modest performance. Constant currency growth for major players has remained subdued at levels below **5%**. While rupee depreciation provided a marginal benefit of **30 to 40 basis points** to margins, these gains were largely offset by rising wage costs and lower discretionary spending in the global BFSI and high-tech sectors. Strategic Pivots and Infrastructure Despite the stock market volatility, the industry is recalibrating for a **$350 billion** valuation target by **2026**. Government and industry leaders are pushing a "human-centric" AI vision. The Union Budget **FY26-27** has earmarked **2,000 crore** to accelerate AI adoption, alongside a massive push for domestic data centers. India’s AI market is projected to reach **$28.8 billion** by the end of this year. Companies are increasingly focusing on Global Capability Centres (GCCs), which are expected to generate up to **25%** of all new white-collar tech jobs. Current Market Outlook Valuations for the sector have corrected to near their **10-year median**, drawing mixed reactions from institutional investors. While some see an entry opportunity, others point to a "bearish" technical setup across moving averages. Profitability remains the primary metric for the coming quarters. Investors are shifting focus away from simple revenue growth toward deal pipelines and the ability of firms to integrate generative AI into their service deliveries without cannibalizing existing revenue streams.