February 2026 was a month of intense volatility, where initial gains from the US-India trade deal were erased by a massive 21% YTD slump in the IT sector fueled by “AI panic.” While domestic GDP data surprised on the upside at 7.8% with a new base year, global sentiment was rattled by the outbreak of major combat operations in Iran. Ultimately, the Nifty 50 ended flat as resilience in Pharma and Metals offset the tech “SaaSpocalypse” and rising geopolitical risk.

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Markets Last Month 🗓️

1. A Month of Hidden Churn and Indecisive Swings

February 2026 witnessed a market that could be as indecisive as it can get. The headline indices displayed initial exuberance on the announcement of the US-India trade deal, only to feel disappointed when the fine print was out. While on a Point-to-Point returns basis, one would feel that nothing much has happened during the month, but we know that’s far from the actual scenario. Nifty 50 ended flat with a cut of 51 basis points exhibited by heightened volatility across the span of the month. From a sectoral standpoint, the IT stocks were the culprits and single-handedly dragged down the headline indices. On the positive side, the likes of Pharma & Healthcare, Metals, and Consumer Durables stocks did well for themselves.

2. AI might replace humans and ‘Information Technology’ (IT) also

The month of February 2026 will be etched in the memory of Indian IT investors for years to come. The Nifty IT index plunged 21% on a calendar-year-to-date basis by February 24, closing at a 30-month low not seen since August 2023 and threatening its worst monthly performance since April 2003. The catalyst was layered: it began with growing anxiety around generative AI’s ability to automate core IT services, which was crystallised and sharply accelerated by two reports. First, the launch of advanced enterprise AI tools by Anthropic intensified fears that large swathes of tasks, such as contract review, legacy code modernisation, basic application maintenance, and compliance workflows previously requiring large IT services teams, could be automated at a fraction of the cost. Second, a widely circulated note from Citrini Research outlined a scenario in which India’s IT majors, including TCS, Infosys, and Wipro, could see an acceleration in contract cancellations through 2027 as the marginal cost of AI coding agents collapses. The Nifty IT index fell 4.7% on that single day (February 24). Jefferies noted in a February 22 report that while Q3 earnings had actually delivered upgrades for most IT firms, AI fears triggered valuation de-rating of up to 27%. 

3. Iran-US Conflict Upends Global Markets

The final day of February 2026 delivered the month’s most dramatic market moment: on February 28, the United States confirmed it had launched “major combat operations” in Iran in a coordinated operation with Israel, targeting multiple government ministries in Tehran and key military infrastructure. The immediate market reaction was textbook risk-off but historic in magnitude. Gold futures surged over 2% in a single session, vaulting from approximately $5,100 to over $5,300 per ounce. Even before the strikes, tensions had been building through February: Brent crude rose 4% in a single session on February 18–19 to trade around $71.66 per barrel, its highest level in seven months, as US-Iranian nuclear negotiations in Geneva broke down and Washington moved carrier strike groups closer to the Gulf. Iran partially closed the Strait of Hormuz for naval exercises, a move that triggered acute anxiety, given that roughly 13 million barrels per day, or 31% of global seaborne crude, transits through that chokepoint. Natural gas prices also spiked with the broader energy complex. For Indian equities, the month-end shock was particularly jarring given the market’s elevated sensitivity: oil is India’s single largest import, and a sustained move above $80–100/bbl would meaningfully widen the current account deficit, stoke imported inflation, and constrain RBI’s monetary easing path.

4. New GDP, Old Pace

On February 27, 2026, the Ministry of Statistics and Programme Implementation (MoSPI) released India’s Q3 FY26 GDP data and delivered a double surprise. The economy expanded 7.8% in real terms in the October–December 2025 quarter, beating most pre-release consensus estimates of 7.3–7.5% and marking a sharp improvement over the 7.4% recorded in Q3 FY25 a year earlier (The Statesman). Real GDP for the quarter was pegged at ₹84.54 lakh crore, while nominal GDP at current prices stood at ₹90.91 lakh crore, reflecting a nominal growth rate of 8.9%. The second surprise was methodological: MoSPI simultaneously released a completely new national accounts series with base year 2022–23, replacing the outgoing 2011–12 base year. The overhaul incorporated GST network data, e-Vahan portal records for electric vehicles, and domestic services from cooks, drivers, and household helpers, all structural components of India’s modern economy that were invisible or poorly captured in the old framework. Under the revised series, full-year FY26 real GDP growth is now projected at 7.6%, up from the 7.4% estimate published in the January advance estimates. Q2 (July–September 2025) growth was revised upward to 8.4% from 8.2%, while Q1 was revised down to 6.7% from 7.8%, reflecting the more honest picture the new methodology paints. Sector highlights: manufacturing surged 13.3% in Q3, while services expanded 9.5%. On the demand side, central government capital expenditure contracted 23.4% on a high base effect. Internationally, Fitch Ratings upgraded its FY26 India growth forecast to 7.4%, and the RBI pegs Q1 and Q2 of FY27 at 6.9% and 7.0%, respectively, reinforcing India’s position as the world’s fastest-growing major economy even as the revision process draws scrutiny from the IMF, which had previously flagged data quality concerns.

5. Navigating Geopolitics, Tariffs, and the “SaaSpocalypse”

Global equity markets navigated a turbulent February shaped by three concurrent forces: the accelerating AI disruption narrative (dubbed the “SaaSpocalypse” by some analysts), renewed US tariff activity, and, in the final hours of the month, the shock of military strikes against Iran. In the United States, the S&P 500 posted a modest gain in January, but February was choppy. The Nasdaq faced particular pressure given its heavy tech weighting, as investor concerns about AI disrupting SaaS and IT services models hammered multiple sub-sectors. The Dow Jones Industrial Average hovered around 48,700–49,400 through the month. European markets were mixed but broadly resilient: Japan was February’s standout: the Nikkei 225 climbed to record highs through most of the month, with the index gaining 3.56% in the final week of February alone, buoyed by PM Takaichi’s policy momentum and a relatively contained tariff impact. Relative to India, the global picture is nuanced. While India’s benchmark Nifty 50 was roughly flat to mildly negative year-to-date through February, outperforming its own IT sector sharply, it underperformed the Nikkei’s strength and tracked the broader EM risk-off tone. With the Iran conflict opening in March with significant volatility, and US tariff policy remaining fluid, the global setup heading into Q4 FY26 remains one of elevated geopolitical and macro uncertainty for every major equity market, including India.

Windmill Wisdom 🧠

AI Panic vs Enterprise Reality: What’s Really Happening in Indian IT?
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The IPO Alpha Illusion: Is India’s $22 Billion Surge Worth the Drawdown?
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Rebalance Completed 🧮

Our quant-based and AI-based model smallcases were reviewed and updated.

• Defence Picks – AI Model
• Growth Multicap – Quant
• Quality Bluechip – Quant
• Quality Smallcap – Quant

Head over to the smallcase app, check out the smallcase of your choice, > Go to Stocks & Weights tab and scroll down to download the Portfolio Report to view the rationale behind the rebalance.

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