The Indian IT sector is facing a significant valuation correction as of February 24, 2026, driven by rapid advancements in artificial intelligence. The Nifty IT index has plummeted 18.19% over the past month, reflecting deep investor anxiety regarding the industry's traditional labor-intensive business models. The primary catalyst for this shift is Anthropic's launch of Claude Code, a specialized AI tool designed to modernize legacy COBOL-based systems. This development directly targets a high-margin revenue stream for Indian firms, as COBOL still powers an estimated 95% of ATM transactions and a vast majority of global financial infrastructure. Market reactions have been sharp. US-listed ADRs for major Indian IT players fell by up to 5%, while IBM shares suffered a historic 13% single-day drop, wiping out 31 billion dollars in market value. On domestic exchanges, Infosys shares recently traded down 1.90% at 1,327.50 INR, and Wipro declined 1.89% to 205.89 INR. The disruption is not limited to coding. Analysts estimate that 9% to 12% of industry revenues could be eliminated over the next four years. Application services, which account for 40% to 70% of total revenue for firms like TCS and HCLTech, are viewed as highly vulnerable to AI-led automation. Despite the sell-off, some resilience remains. The top five Indian exporters reported combined contract bookings of 21.5 billion dollars in the most recent quarter. Furthermore, the Indian government is doubling down on infrastructure, planning to add 20,000 GPUs to its national compute capacity to support domestic AI development at significantly lower costs than global rates. Industry leaders are now pivoting from labor-based billing toward outcome-based models. While the "software is dead" narrative is considered premature by some analysts, the pressure to integrate AI into client delivery is no longer optional. The sector's ability to transition from a workforce-heavy model to an AI-first engineering framework will determine its stability in the coming year. Current technical indicators show the Nifty IT index continues to struggle, even as broader benchmark indices like the Sensex and Nifty 50 maintain modest gains. Investors are closely monitoring the 25,500 support level for the Nifty, as any further breakdown could signal a deeper pull-back for technology stocks.