Indian IT stocks experienced a dramatic sell-off on February 12, 2026, marking one of the sector's worst trading days in recent history. The Nifty IT Index crashed by 5.5%, closing at 33,160.20, its lowest level in nearly 10 months. This sharp decline wiped out over ₹1.3 lakh crore in market capitalization from leading IT companies, sending shockwaves through Dalal Street.
The sell-off was not an isolated incident but rather the culmination of mounting pressures that have been building since the start of 2026. After falling approximately 13% in 2025, the IT index has already declined another 13% in the first six weeks of 2026, reflecting deep-seated concerns about the sector's future in an AI-dominated landscape.
Major IT heavyweights bore the brunt of the selling pressure. Tata Consultancy Services (TCS), India's largest IT services company, plummeted 5.5%, while Infosys dropped 5.8% and Wipro slid 4.7%. Mid-tier companies faced even steeper declines, with Coforge plunging 7%, Tech Mahindra falling 6%, and LTIMindtree declining over 5%. The widespread nature of the sell-off indicates systemic concerns rather than company-specific issues.
The primary catalyst for the recent sell-off was the launch of advanced AI tools by Anthropic, particularly the Claude Cowork agent with plug-ins that can automate tasks across legal, sales, marketing, and data analysis functions. This development has triggered widespread fears that AI-driven automation could fundamentally disrupt the traditional labor-intensive delivery model that has been the backbone of India's $283 billion IT sector.
Investors are increasingly concerned that these AI tools may replace many IT services currently outsourced to Indian companies, potentially slashing billable hours and reducing headcount requirements. The fear is that automation could compress margins and reduce demand for certain service lines, particularly in areas like application maintenance, testing, and routine coding tasks that have historically generated steady revenue streams.
Vinit Bolinjkar, Head of Research at Ventura Securities, noted that "AI automation targets labour-heavy models at top Indian IT firms, slashing billable hours and headcount." This sentiment reflects the market's growing anxiety about the deflationary impact of AI technologies on IT services revenues.
The overnight sell-off in US technology stocks created a ripple effect that quickly transmitted to Indian IT markets. Wall Street turned cautious as investors reassessed growth expectations for global tech companies amid intensifying competition in artificial intelligence and concerns about slowing enterprise spending.
Because Indian IT companies generate approximately 50-60% of their revenues from the United States, any weakness in US tech sentiment directly impacts Indian stocks. The strong correlation between US and Indian IT markets means that when American technology valuations come under pressure, Indian IT stocks inevitably follow suit, regardless of domestic fundamentals.
Adding to the pressure, American Depositary Receipts (ADRs) of major Indian IT companies traded sharply lower on US exchanges. Infosys ADRs plunged over 7%, while Wipro ADRs fell 5%, signaling weak sentiment among international investors.
Stronger-than-expected US jobs data for January significantly dampened hopes of near-term interest rate cuts by the US Federal Reserve. The US economy added 130,000 jobs in January, and the unemployment rate fell to 4.3%, indicating continued labor market strength. These signs of economic stability suggest the Federal Reserve may keep interest rates elevated for an extended period while monitoring inflation trends.
Higher interest rates for longer periods typically weigh on technology stocks, which are valued based on future earnings. Elevated rates increase the discount rate applied to future cash flows, making growth stocks less attractive. Additionally, higher rates can lead to reduced IT spending by enterprises as borrowing costs increase and companies become more cautious about discretionary technology investments.
The recent sharp rally in Indian markets also played a role in the IT sector's decline. After Monday's strong move, investors became more selective, particularly in sectors trading at premium valuations. IT stocks, which had earlier benefited from defensive positioning, faced significant profit-booking as capital rotated toward policy-driven and infrastructure-linked themes.
This rotation is typical in volatile markets and often leads to exaggerated moves in high-beta sectors like IT. After periods of optimism around deal wins and digital demand recovery, IT stocks were trading at relatively elevated multiples, making them vulnerable to sharp corrections in a risk-off environment.
Reports that the Trump administration is expanding efforts to revoke US citizenship for foreign-born Americans and working to curb immigration have spooked market sentiment. Indian IT majors employ significant numbers of H-1B visa holders, and any restrictions on visa availability or increases in visa costs could impact their operational flexibility and increase expenses.
Changes in immigration policy or rises in visa charges make costs more expensive and decrease flexibility in project execution, particularly for onsite work that requires physical presence at client locations in the United States.
Beyond immediate market triggers, there are deeper structural concerns about the IT sector's ability to maintain revenue growth and protect margins in an evolving technology landscape. The deflationary impact of AI on traditional IT services pricing is a significant worry, as automation could lead to pricing pressures and reduced billing rates.
Companies are being forced to make substantial investments in AI capabilities to remain competitive, which may impact near-term margins. The transition from traditional services to AI-enabled offerings requires significant capital allocation for research, development, and talent acquisition, potentially squeezing profitability during the transformation period.
| Company | Single-Day Fall | YTD 2026 Performance | 2-Year Performance |
|---|---|---|---|
| TCS | -5.5% | -13% | -32% |
| Infosys | -5.8% | -11% | -17% |
| Wipro | -4.7% | -10% | -13% |
| HCL Tech | -5.2% | -9% | -10% |
| Tech Mahindra | -6.1% | -8% | +19% |
| Coforge | -7.0% | -15% | -20% |
| LTIMindtree | -5.4% | -12% | -18% |
The sustained underperformance of IT stocks has led to significant changes in India's corporate hierarchy. TCS, which was previously India's fourth-most valuable company, has now slipped in rankings. On February 12, 2026, ICICI Bank overtook TCS to become the country's fifth-largest firm by market capitalization, just a day after State Bank of India also surpassed the IT major.
This shift reflects the broader market sentiment that banking and financial services stocks are better positioned to benefit from India's economic growth trajectory compared to IT services companies facing structural headwinds from AI disruption.
Dr. Ravi Singh, Chief Research Officer at Master Capital Services, suggests that investors are factoring in legitimate concerns about slower growth, pricing power, and margin pressure as automation increases. However, he believes the recent weakness should be seen more as a valuation reset than a structural breakdown.
Singh advises long-term investors to selectively accumulate quality names in phases, while short-term traders should wait for clearer signs of stability before taking positions. This nuanced view acknowledges both the real challenges facing the sector and the potential for oversold conditions to create buying opportunities.
Drumil Vithlani, Technical Analyst at Bonanza, notes that key stocks such as Wipro and Tech Mahindra are trading below important support levels, reflecting weak momentum. The technical breakdown suggests that the selling pressure may continue until clear reversal signals emerge.
Ajit Mishra, Senior Vice-President (Research) at Religare Broking, advises avoiding bottom fishing until there are clear signs of a reversal. He emphasizes that the sector has remained under pressure with volume-led selling, indicating genuine distribution rather than temporary profit-taking.
Despite near-term challenges, some analysts maintain a cautiously optimistic long-term view. The fundamental drivers of digital transformation remain intact, and Indian IT companies have demonstrated resilience through previous technology transitions. The key question is whether these firms can successfully pivot from traditional services to AI-enabled offerings while protecting margins.
Companies that can effectively leverage AI as a growth lever rather than viewing it as a structural threat may emerge stronger. Those securing AI-led deals and rolling out domain-specific platforms across verticals such as BFSI and healthcare could see their competitive positions strengthen over time.
The immediate outlook for IT stocks remains challenging. The sector faces a confluence of headwinds including AI disruption fears, elevated US interest rates, global economic uncertainty, and valuation concerns. Until these factors stabilize, volatility is likely to persist.
The December quarter (Q3) is seasonally weak for Indian IT companies due to furloughs and lower working days, so clarity on the demand scenario may not emerge immediately. Investors will be closely watching Q4 earnings and management commentary for signs of stabilization or further deterioration.
Several factors could trigger a recovery in IT stocks. A stabilization in US technology stocks would remove a major source of negative sentiment. Clarity on the Federal Reserve's interest rate trajectory and signs of improving enterprise spending could also boost confidence.
Most importantly, evidence that AI is becoming a growth driver rather than a threat would be a game-changer. Companies demonstrating successful AI implementations, securing large AI-transformation deals, and showing that automation is enhancing rather than cannibalizing revenues could shift market perception dramatically.
For investors, the current environment requires careful navigation. Quality companies with strong balance sheets, diversified client bases, and demonstrated AI capabilities may offer better risk-reward profiles. Selective accumulation during periods of weakness could prove rewarding for patient, long-term investors.
However, attempting to catch a falling knife carries risks. Waiting for technical confirmation of a trend reversal and signs of improving fundamentals may be prudent for risk-averse investors. The key is distinguishing between temporary sentiment-driven weakness and genuine structural deterioration.
The dramatic fall in Indian IT stocks on February 12, 2026, represents more than just a bad trading day. It reflects deep-seated concerns about the sector's ability to navigate the AI revolution while maintaining its traditional business model. The combination of AI disruption fears, global tech weakness, fading rate cut hopes, and structural challenges has created a perfect storm for IT stocks.
While the near-term outlook remains uncertain, the long-term story of digital transformation and India's position as a global technology services hub remains intact. The sector's ability to adapt, innovate, and leverage AI as an opportunity rather than a threat will determine whether the current weakness represents a buying opportunity or the beginning of a prolonged downturn.
Investors should remain vigilant, focus on quality companies with strong fundamentals, and maintain a long-term perspective. The IT sector has weathered previous storms and emerged stronger, but this transition may require patience and selective positioning. As always, diversification and risk management remain crucial in navigating these turbulent times.