Mumbai, February 25, 2026 – The Nifty IT Index is on track for its steepest February decline in over two decades, as investor fears over artificial intelligence (AI) disrupting traditional outsourcing models continue to weigh on India’s software sector.

So far this month, the Nifty IT index has fallen 21%, erasing over ₹6.4 lakh crore in market capitalization. Individual heavyweight stocks have seen sharp losses, with Infosys down 21%, TCS off 19%, Wipro down 24%, Tech Mahindra losing 16%, and HCL Tech declining 18%.

The ongoing selloff follows warnings from Citrini Research in its report The 2028 Global Intelligence Crisis, which forecasts accelerating contract cancellations for India’s IT giants as AI tools replace human coding. The report highlights that India’s IT services sector, which exports over $200 billion annually, remains the largest contributor to the country’s current account surplus. Yet, the marginal cost of AI-driven coding has collapsed, challenging the sector’s traditional cost advantage.

Mutual fund and foreign investor exodus
Amid the rout, mutual funds have cut their combined IT holdings by over ₹70,000 crore, with current investments standing at ₹3.2 lakh crore, down from ₹3.95 lakh crore in January. Foreign institutional investors (FIIs) have reduced holdings by nearly ₹85,000 crore to ₹4.49 lakh crore as of mid-February, the lowest level in four years.

Brokerage revisions and outlook
Global brokerages have taken differing stances. Jefferies India cautioned that AI could structurally shift IT business toward consulting and implementation, shrinking managed services and increasing cyclicality. The brokerage revised earnings estimates down 1–4% and downgraded major IT stocks: Infosys, HCL Tech, and Mphasis from Buy to Hold, and TCS, LTIMindtree, and Hexaware from Hold to Underperform. Jefferies warned of a potential 30–65% derating under a worst-case AI disruption scenario.

Conversely, CLSA argued that AI-related fears appear overdone, citing channel checks and management commentary indicating no material shift in business positioning. CLSA maintained selective stock preferences for Infosys, Tech Mahindra, Coforge, and Persistent Systems, though it cut price targets across the board due to valuation derating. The brokerage noted that AI is largely being absorbed as an incremental efficiency tool rather than a wholesale replacement of traditional services.

Analysts’ views
While the sector’s near-term outlook remains fragile, analysts suggest that long-term opportunities still exist. Jefferies highlighted that large IT firms like Infosys, TCS, and HCL Tech could see rerating potential of around 15%, while mid-sized firms such as Hexaware and IKS could deliver 35–45% upside if revenue growth holds.

As Indian IT grapples with the dual challenges of global AI adoption and investor sentiment, February 2026 is shaping up to be a historic month of volatility for the sector.