India’s information technology sector faced one of its sharpest declines in decades in February 2026. The Nifty IT index dropped about 21% during the month, marking its worst fall in nearly 23 years. This steep correction came as global investors reacted to fast advances in artificial intelligence and rising concerns that AI tools could change the traditional IT services model.
Heavyweights such as Tata Consultancy Services and Infosys saw sharp erosion in market value. The sell-off was not limited to a few firms; it spread across large, mid-sized, and smaller technology companies. The broader market indices also felt pressure as technology stocks carry significant weight in institutional portfolios.
The sharp fall in share prices caused major losses for large domestic institutions. Reports show that around ₹1.01 lakh crore was wiped out from the combined IT holdings of Life Insurance Corporation of India and mutual funds during February.
Life Insurance Corporation of India alone saw an estimated decline of about ₹38,000 crore in the value of its IT investments during the month. Mutual funds collectively recorded a fall of nearly ₹63,000 crore in their exposure to the same sector over the same period. These figures reflect mark-to-market losses, meaning the value dropped due to falling share prices, not because of forced selling.
In a broader two-month view, estimates suggest LIC’s IT portfolio value fell by nearly ₹42,500 crore. The majority of this drop came from its holdings in leading software exporters. Mutual funds also saw their investments in the top 10 IT companies shrink significantly. The total value of these holdings declined from around ₹3.56 lakh crore at the end of January to about ₹3.04 lakh crore by mid-February.
The sharp fall is mainly due to fast growth in artificial intelligence. New AI systems can now write code, test software, and do routine work that was earlier done by large teams of engineers. This has made investors nervous. They fear companies may not need as many people for tech projects in the future.
India’s IT sector has always followed a people-based model. Companies earn money by sending skilled professionals to work on projects for global clients. If AI tools reduce the need for human work, companies may earn less from each project. Profits could fall. Experts also say companies may not be able to charge the same high prices if automation makes projects smaller or faster to complete.
Some global brokerage firms have issued cautious notes on Indian IT stocks. There have even been warnings of possible valuation corrections ranging from 30% to 65% in extreme scenarios if growth slows sharply. Such strong comments added to negative sentiment and increased selling pressure.
Large institutions like LIC and mutual funds have big investments in top technology companies. For many years, these stocks gave steady returns and were seen as safer than many other sectors. Because they performed well for so long, a large part of institutional money became concentrated in a few major IT companies.
When the IT sector fell sharply, the impact was strong. Even without selling any shares, the value of these holdings dropped because stock prices went down. This directly reduced the total reported value of their investments. Mutual fund schemes with heavy exposure to IT stocks also saw their net asset values decline.
This situation shows the risk of putting too much money into one sector. If technology changes quickly or investor sentiment shifts, portfolio values can move up or down very fast.
The next few quarters are very important for the IT sector. Investors will closely follow company earnings, leadership commentary, and future guidance. Updates on client spending, use of AI, and cost control will shape market sentiment.
If companies prove that AI can help them grow faster and improve efficiency, confidence may return. But if global clients reduce spending or delay projects, stock prices may stay under pressure.
For large institutions, the focus may now move toward better risk management and more balanced portfolios. The recent correction is a reminder that even strong and established companies can face sudden challenges when new technology changes the industry.