The Nifty IT index has entered a phase of historic volatility, plunging over 21% in February 2026. This mark represents the sector’s worst monthly performance since the 2008 global financial crisis. On February 24 alone, the index tanked another 6%, wiping out approximately 5.05 lakh crore in investor wealth within a single month. The primary catalyst for this rout is a "perfect storm" of AI-driven disruption and global trade uncertainty. Fears intensified after tech startup Anthropic demonstrated its Claude tool’s ability to modernize legacy COBOL code. This breakthrough has raised alarms that long-standing revenue streams from managed services—the backbone of Indian IT—could be rapidly automated or made obsolete. Market heavyweights have faced significant selling pressure. On the latest trading day, HCLTech and Tech Mahindra dropped as much as 6% to 7%. Infosys and Tata Consultancy Services (TCS) also recorded steep declines of 4% to 6%, pushing their stock prices to multi-year lows. Beyond AI concerns, a new wave of global macro pressure has hit the sector. Renewed global trade tensions and fresh tariff remarks from the U.S. administration have sparked fears of reduced discretionary spending. Since Indian IT firms derive the majority of their revenue from the U.S. and Europe, any threat to international trade flows directly impacts their growth outlook. Valuations for the sector have now dropped to an eight-year low relative to the Nifty 500. While some contrarian investors see this as a value opportunity, institutional sentiment remains cautious. Foreign Institutional Investors (FIIs) have been net sellers, pulling out over 10,950 crore from the IT sector in early February alone. Analysts suggest that while the sector is trading at a more attractive Price-to-Earnings (P/E) ratio of approximately 21.5x—near its 10-year average—cheap valuations may not be enough. The industry is facing a structural shift where traditional application maintenance is expected to shrink, potentially denting overall revenues by 10% to 12% over the next few years. Market experts emphasize that the next phase for Indian IT will depend on how quickly these companies can pivot to AI-led consulting and innovation. For now, the lack of a clear execution roadmap to protect revenue moats is keeping the outlook cloudy. Investors are advised to seek clarity on long-term growth before making decisive moves into the sector.