Indian IT stocks have entered a period of intense volatility as the sector faces a structural realignment driven by advancements in Artificial Intelligence. The Nifty IT index witnessed a sharp 21% decline in February 2026, marking its most significant monthly retreat since the 2008 global financial crisis. This downturn, often termed an "Anthropic shock," followed the launch of sophisticated automation tools that threaten traditional software outsourcing models. Major industry leaders saw substantial erosion in market value, with Infosys and Wipro recording losses of 20% and 23.5% respectively. Tata Consultancy Services (TCS) also faced pressure, briefly seeing its market capitalization dip below the ₹10 lakh crore milestone. Despite the broader sell-off, a segment of the market is showing notable resilience. Approximately 25 select stocks have defied the downward trend by pivoting toward AI infrastructure, specialized engineering, and deep-tier integration. These companies are shifting from a labor-intensive "headcount" model to "outcome-based" delivery, which investors are rewarding as a more sustainable strategy. Recent data suggests the "AI scare trade" may be reaching exhaustion. On February 25, the Nifty IT index staged a 3% rebound as reports emerged of potential collaborations between AI startups and established Indian firms. Strategic partnerships are replacing fears of total displacement, with firms like Anthropic exploring service alliances that could utilize India's massive talent pool for AI orchestration. Industry projections remain cautiously optimistic. NASSCOM estimates the sector will reach $315 billion in revenue for fiscal year 2026, reflecting a 6.1% annual growth. AI-specific services are expected to contribute between $10 billion and $12 billion of this total, signaling that the industry is expanding into new domains even as traditional coding tasks are automated. Valuations for the sector have reached levels that some analysts now describe as too attractive to ignore. While the Nifty IT index hit a multi-year low of 30,053 this month, the dip has prompted institutional buying. Investors are increasingly focusing on "AI enablers"—companies with strong platforms in cloud computing, cybersecurity, and data governance—as the primary drivers of the next growth cycle. The current landscape represents a pricing reset rather than a terminal decline. The transition to a hybrid delivery model—where human expertise is layered with AI agents—is expected to dominate the short-term outlook. Market participants are now closely monitoring firms that can successfully compress delivery timelines and capture higher margins through automated efficiency.