Nifty IT Index Suffers Worst Monthly Decline Since 2008 Financial Crisis
A dramatic selloff in technology stocks has pushed the Nifty IT index into its most severe monthly decline since the 2008 global financial crisis. Investor confidence has been severely rattled by growing fears surrounding artificial intelligence disruption, compounding existing macroeconomic concerns.
Steep February Plunge Triggers Market Alarm
With Tuesday's 6% decline, the Nifty IT index has plunged over 21% in February alone, according to market reports. This represents the index's worst monthly performance since the depths of the 2008 financial crisis. The current trigger extends beyond general economic weakness to include specific concerns about potential disruption to traditional IT services business models.
The anxiety intensified significantly after AI startup Anthropic announced that its Claude tool can help streamline COBOL code. This development raised immediate fears about long-standing revenue streams for established technology companies. The announcement sent shockwaves across global technology stocks, with IBM shares plunging 13% overnight – marking the company's worst single-day selloff in approximately 25 years.
Broad-Based Decline Across IT Sector
During the latest trading session, IT stocks fell as much as 8%, with several major players leading the losses:
- Coforge, Persistent Systems and HCLTech declined about 7-8%
- Infosys, Tech Mahindra, Mphasis and Tata Consultancy Services dropped roughly 4-6%
- The Nifty IT index itself tanked 6% during the session
Following this correction, the Nifty IT index now trades at an eight-year low relative to the broader Nifty 500 index. This significant valuation gap has begun drawing attention from contrarian investors searching for potential value opportunities in the battered sector.
Market Experts Urge Caution Despite Lower Valuations
Financial experts have cautioned investors against rushing into the sector despite the apparent cheap valuations. S Naren, Executive Director and Chief Investment Officer at ICICI Prudential AMC, emphasized that "the sector is in a flux along with heightened fear." He noted that while there is scope for meaningful returns if growth risks don't materialize, clarity on long-term growth is essential before becoming decisively positive.
"In a sector which is facing disruption, cheap valuation alone will not suffice," Naren told financial publications.
Alok Agarwal, Head of Quantitative Research and Fund Manager at Alchemy Capital Management, pointed out that the sector's weakness predates current AI-related concerns. He noted that earnings growth over the past 3, 5 and 10 years has largely remained in single digits or barely reached double digits.
According to Agarwal, this underperformance reflects multiple structural challenges:
- Commoditisation of services
- Persistent pricing pressure
- Sluggish demand from key Western markets
Adding AI disruption on top of these existing trends could further weaken earnings visibility. Agarwal added that while high dividend yields and attractive free cash flow yields may appear supportive, these remain backward-looking indicators. If growth weakens further, cash generation could come under pressure, making such yields less sustainable.
"Until companies demonstrate clear strategies to pivot towards AI enablement or move up the value chain, the risk-reward balance may remain unfavourable even over a four- to five-year horizon," Agarwal concluded.
Technical Analysis Points to Further Downside Risk
Technical analysts have identified several concerning patterns in the market signals that continue to favor caution.
Anand James, Chief Market Strategist at Geojit Investments, noted that while oscillators had earlier turned oversold with signs of positive divergence, the latest breakdown pushed the index below the February 13 reaction low of 31,422. Momentum indicators now favor further downside. He identified several key levels:
- 29,961 as the nearest support level
- 28,800 and 27,200 as deeper support levels
- 30,300 intraday and 31,300 on a closing basis as key reversal levels
- 36,200 as major resistance
Sachin Gupta, Vice President of Research at Choice Broking, observed that the index entered a clear bearish phase after breaking down from a Head and Shoulders pattern on the weekly chart. The fall below the crucial 10-month low of 30,918 confirmed a structural trend reversal. The breach of the 61.8% Fibonacci retracement level and a negative crossover of key moving averages – commonly referred to as a Death Cross – suggests the earlier buy-on-dips strategy has shifted to sell-on-rise.
Gupta sees further downside towards the 29,300–28,700 zone unless a strong global trigger, particularly stability in the Nasdaq, improves market sentiment.
Ajit Mishra, Senior Vice President at Religare Broking, noted that the index has formed a pattern of lower highs and lower lows, signaling weakening momentum. Immediate support is seen near 29,600, with a major support zone around 26,300. Any rebound towards 33,000–34,000 could attract fresh selling pressure. He advised traders to avoid fresh long positions and instead look for shorting opportunities on rebounds.
More Pain or Opportunity Ahead?
The valuation discount in IT stocks has become increasingly evident, but uncertainty around AI-led disruption continues to cloud the sector's outlook. Market observers note that if technological changes prove to be incremental rather than transformative, the sharp correction could eventually create long-term investment opportunities. However, if demand for traditional IT services weakens materially, the current downturn may persist for an extended period.
For now, most experts recommend a wait-and-watch strategy as investors look for clearer signs of growth stability and sector adaptation to the changing technological landscape. The combination of structural challenges and disruptive innovation has created an unusually complex environment for IT sector investors, requiring careful analysis of both valuation metrics and fundamental business model sustainability.
