The Indian IT sector is currently navigating its most volatile period since the 2008 global financial crisis. As of February 25, 2026, the Nifty IT index has plummeted more than 21% in a single month, reflecting a localized "tech panic" primarily driven by rapid advancements in generative AI. The downturn reached a flashpoint this week following reports that new AI tools can now automate up to 70% of legacy system maintenance. This development directly threatens the traditional labor-arbitrage model that has long sustained Indian software giants. Major heavyweights have seen their market values eroded, with companies like TCS and Infosys shedding between 17% and 22% of their share price in February alone. Institutional investors are feeling the immediate impact of this structural shift. The Life Insurance Corporation of India (LIC) has seen its IT portfolio value drop by approximately 42,500 crore rupees over the last two months. Mutual funds have fared similarly, with the notional value of their top ten IT holdings shrinking by over 50,000 crore rupees as fund managers pivot toward more resilient sectors like financials. Despite the equity market turmoil, the industry’s broader fundamentals show signs of a painful but steady transition. Nasscom projections for fiscal year 2026 estimate industry revenue will grow by 6.1% to reach 315 billion dollars. This growth is increasingly fueled by AI-led services, which are expected to contribute 10 billion to 12 billion dollars this year as enterprises move from AI experimentation to full-scale execution. Valuations have now hit an eight-year low relative to the broader Nifty 500, tempting contrarian investors. The Nifty IT index is currently trading at a price-to-earnings ratio of approximately 27x, down from its five-year average of 32x. However, analysts caution that cheap valuations may not be a sufficient "buy" signal until firms prove they can monetize AI effectively and protect their margins against automated competition. The workforce landscape is also evolving. While net hiring has moderated, the industry is projected to add 135,000 jobs in 2026, bringing the total headcount to nearly 6 million. The focus has shifted toward high-end skills, with over 2 million professionals already upskilled in AI. Organizations are moving away from uniform salary hikes, with 2026 increments stabilizing at 9.1% and focusing heavily on specialized AI talent premiums. In summary, the sector remains at a critical inflection point. While short-term sentiment is dominated by the fear of revenue deflation, the long-term outlook depends on how quickly India’s IT leaders can replace declining traditional billable hours with high-value, AI-integrated consulting and engineering services.