The Indian IT sector is currently navigating a significant structural shift as new US immigration policies and a massive surge in artificial intelligence investments redefine the industry landscape for 2026. Market sentiment remains cautiously optimistic despite recent volatility. On February 11, 2026, the BSE 100 index edged up 0.13%, with large-cap IT stocks like Tech Mahindra seeing technical upgrades to bullish status. Overall industry revenue is projected to reach $350 billion by the end of 2026, contributing nearly 10% to India’s GDP. The most pressing challenge is the new US H-1B visa fee structure effective since late 2025. New visa applications now carry a one-time fee of $100,000, a staggering increase from the previous $2,000 to $5,000 range. Moody’s estimates this change will raise operating costs for major Indian IT firms by $100 million to $250 million annually. This fee hike represents approximately 1% of total revenues for industry giants. While top-tier firms like TCS and Infosys possess the cash reserves to absorb these costs, mid-sized companies are facing intensified margin pressure. Analysts suggest the move could erode EBIT margins by 50 to 150 basis points per H-1B employee. In response, the sector is accelerating a pivot toward local hiring in the US and expanding Global Capability Centers (GCCs) within India. Local US hiring is expected to rise by 12% to 18% through 2027. This strategy aims to de-risk operations from further visa restrictions and a proposed 25% tax on outsourcing payments currently under discussion. Artificial Intelligence is now the primary engine of growth. India’s AI market is on track to hit $28.8 billion this year, growing at a 45% compound annual rate. Large firms have already trained over 60% of their workforce in GenAI to secure high-value contracts in the banking and healthcare sectors. Revenue growth for FY26 is forecasted at a moderate 4% to 6% as clients remain selective with discretionary spending. However, operating margins are expected to hold steady at 22.5% to 23.0% due to aggressive cost-control measures and a sharp decline in attrition rates, which have stabilized at approximately 13%. Investment flows reflect this transition. While domestic institutional investors have recently booked profits, foreign institutional investors returned as net buyers in February 2026. This indicates growing confidence in the sector’s ability to transition from a low-cost labor model to a high-value, AI-driven digital services provider.