Major Indian IT stocks faced sharp volatility in late February 2026 as analysts warned of a deepening structural crisis. Market heavyweight Jefferies has turned notably cautious, downgrading key players and projecting a potential **65% valuation downside** in a worst-case scenario. The Nifty IT index has already slumped **16%** year-to-date, significantly underperforming the flat Nifty 50. The sector's combined market capitalization recently dropped by over **₹1.9 lakh crore** in a single trading session, reflecting intense investor anxiety. Core Disruption Factors Structural risks are centered on the rapid evolution of generative AI, which is expected to trigger revenue deflation. Traditional application development and maintenance—accounting for **22% to 45%** of large-cap revenue—faces shrinking billable hours and lower pricing power. The shift toward outcome-based pricing is replacing the long-standing headcount-based outsourcing model. Analysts expect this transition to increase cyclicality and demand a complete overhaul of talent and delivery structures. Stock Performance and Ratings * **TCS:** Market cap slipped below the **₹10 lakh crore** mark for the first time since 2020. The stock hit a 52-week low near **₹2,686**, with target prices slashed to **₹2,350**. * **Infosys:** Shares plunged **13%** over two sessions to hit a low of **₹1,281.50**. Ratings were cut from "Buy" to "Hold" with a revised target of **₹1,290**. * **HCL Tech:** Downgraded to "Hold" as target multiples compressed. The stock fell over **5%** recently, trading near **₹1,436**. * **Wipro:** Remains at "Underperform" with a target price reduced to **₹180**. Mid-Cap Outlook While large-caps struggle with legacy models, select mid-sized firms are preferred for their agility. Firms like **Coforge**, **Sagility**, and **IKS Health** are expected to deliver a **19% to 25%** earnings CAGR between 2026 and 2028. Smaller players are seen as better positioned to pivot toward high-value AI consulting and implementation. Despite this, the broader sector faces immediate headwinds from high US interest rates and reduced discretionary tech spending by American clients. Future Projections Jefferies has lowered earnings estimates for the sector by **1% to 4%**. Current valuations still carry a **32%** premium over global peers like Accenture, despite significantly lower growth projections. The sector is entering a period of "revenue deflation" where AI tools automate routine tasks, requiring fewer engineers to deliver the same outcomes. Markets are now recalibrating to factor in a projected **6%** earnings CAGR for large-cap firms through 2028.