The Indian IT sector is navigating a period of heightened volatility as of February 2026. After a turbulent start to the month, the Nifty IT index remains under significant pressure, recently recording a sharp weekly decline of 6.91%. This downturn was intensified by a major sell-off on February 4, where the index plunged 7.27% in a single session, marking one of its most volatile days in recent years. Market sentiment is currently caught between short-term technical shocks and long-term structural shifts. While a recent rebound in US technology shares has provided some relief to domestic software stocks, the recovery remains fragile. Frontline companies like Infosys and TCS saw intraday drops of up to 9% earlier this month, driven by global reassessments of business models in the face of rapid generative AI advancements. Key performance indicators for the sector are showing a mix of resilience and strain. For Q3 FY26, major firms reported constant currency growth of less than 5%, reflecting a cautious global spending environment. However, there are emerging silver lining trends. AI-led services are scaling rapidly, with firms like TCS and HCL Tech reporting AI revenue growth of nearly 20% on a quarter-on-quarter basis. Valuations for large-cap IT players have moderated, with Infosys trading at approximately 22 times earnings. Analysts are closely watching margin stability as currency benefits from a 2% rupee depreciation are being largely offset by wage hikes and one-time regulatory costs. Despite the current "rough ride" for AI-related stocks, the sector is projecting a recovery toward 7.7% growth for FY27. Investors are now shifting focus from broad-based rallies to stock-specific quality. Deal pipelines remain robust, with over 70% of new contracts now centered on AI and automation. While near-term uncertainty persists due to US policy shifts and AI disruption fears, the industry is transitioning toward an asset-led model that prioritizes productivity gains over traditional manpower-based services. [How Indian IT companies are using AI](https://www.youtube.com/watch?v=yzQ_5pcVxsw) This video provides an expert roundtable discussion on how major Indian IT firms are integrating AI into their business models to drive revenue growth despite current market challenges. http://googleusercontent.com/youtube_content/0