Indian Markets Surge as Sensex Gains 500 Points Amid Lingering IT Sector Woes

Indian equity benchmarks witnessed a significant rally on February 23, 2026, with the BSE Sensex climbing nearly 500 points, reaching 83,294.66. This upward momentum propelled the Nifty 50 to 25,713.00, marking a strong positive start to the trading week. The broad-based buying was largely fueled by easing global trade tensions following a crucial US Supreme Court ruling and robust performance in key domestic sectors like banking, capital goods, and infrastructure. This surge unfolded even as the Indian IT sector continued to grapple with pronounced challenges, including fears of AI-led disruption and persistent FII outflows. FinScann delves into the complex dynamics shaping the Indian stock market in February 2026, offering crucial insights for investors.

The Catalyst

The primary trigger for the Indian markets surge on February 23, 2026, was a landmark decision by the US Supreme Court. The 6-3 ruling struck down President Donald Trump's "Reciprocal Tariffs" policy, significantly altering the global trade outlook and injecting optimism across international markets. This development was particularly beneficial for export-oriented sectors in India, providing improved visibility and calming near-term concerns around trade disruptions. Furthermore, the broader narrative of India-US and India-EU trade deals has strengthened the long-term growth prospects for several domestic industries.

Domestically, the Reserve Bank of India (RBI) played a pivotal role in fostering market stability. In its February 2026 monetary policy meeting, the RBI unanimously voted to keep the repo rate unchanged at 5.25%, maintaining a neutral stance. This decision, driven by subdued core inflation and a resilient growth outlook, provided a stable interest rate environment, which is crucial for business planning and credit expansion. The RBI's confidence in India's economic resilience, supported by strong high-frequency indicators, reassured investors about the nation's underlying economic strength.

Financial Forensics

While the Sensex gained 500 points, a closer look at sectoral performance reveals a divergence. The Nifty IT index continued its struggle throughout February, facing significant headwinds. The index declined over 6% in February so far, including a 2.07% drop in the week ending February 20, 2026, and a sharp 5% fall on February 24, 2026. Major players like Tech Mahindra, Infosys, TCS, HCL Technologies, Wipro, and Coforge experienced substantial declines, ranging from 5-9% during this period. This weakness is primarily attributed to fears of AI-led disruption impacting traditional service models, a global slowdown in tech spending, and substantial Foreign Institutional Investor (FII) outflows from the sector. FIIs notably sold over ₹10,956 crore from the IT sector in the first half of February 2026 alone, reallocating capital to other sectors and pure-play AI companies listed globally.

Conversely, other sectors demonstrated remarkable resilience and growth. Banking and Financials were robust, with the Bank Nifty outperforming broader markets and showing improved chart structures. Capital Goods, Infrastructure, Manufacturing, and Defence sectors also showcased strong performance, benefiting from sustained government-led capex cycles, robust order inflows, and the "Make in India" initiative. The renewable energy sector continued to attract significant interest, supported by government backing and a national shift towards green energy.

Comparison of Key Sector Performance (Week Ending Feb 20, 2026)

Sector Index	Weekly Performance	Key Drivers
Nifty IT	-2.07%	AI disruption fears, FII outflows, global tech slowdown
Nifty Bank	+1.64%	Strong credit growth, stable asset quality, DII buying
Nifty Metal	+0.39% (offsets IT weakness in Nifty 50)	Domestic demand, infrastructure push
BSE SENSEX 30	+0.23%	Sectoral rotation, financials, power, capital goods
Nifty Midcap 100	+0.13%	Strength in capital goods, defence, PSU banks

Source: NSE, BSE, FinScann Analysis

FII and DII Activity

Domestic Institutional Investors (DIIs) continued to provide crucial support to the Indian stock market, absorbing some of the selling pressure from FIIs. On February 23, 2026, FIIs turned net buyers of equities worth ₹3,483.70 crore, while DIIs were net sellers of ₹1,292.24 crore. This reversal in FII sentiment on February 23, following the positive global trade news, was instrumental in driving the market higher. However, earlier in February, FIIs had been net sellers, with significant outflows particularly from the IT sector. This dynamic highlights the increasing influence of domestic liquidity in cushioning the market against global volatility.

Market Impact

The recent Sensex surge reinforces the narrative of India's decoupling from global tech sector challenges, at least partially. The Indian economy continues to demonstrate resilience, driven by robust domestic demand, strategic government initiatives in infrastructure and manufacturing, and a stable monetary policy environment. Investors are increasingly rotating capital from underperforming sectors like IT into segments aligned with India's long-term growth story, such as banking, capital goods, renewable energy, and defence. While the IT sector's woes present a near-term drag on sentiment and earnings for some companies, the broader market's ability to absorb these shocks and continue its upward trajectory underscores the diversified nature of India's growth engines. The improved global trade outlook, particularly with the US and EU, also enhances the potential for export-led growth beyond traditional IT services.

Key Takeaways for Investors

• Diversify Beyond IT: While the IT sector may present tactical buying opportunities due to attractive valuations after steep corrections, a diversified portfolio with exposure to performing domestic cyclicals like banking, capital goods, and infrastructure is crucial.
• Focus on Domestic Growth Drivers: Companies benefiting from India's strong domestic consumption story, government capital expenditure, and "Make in India" initiatives are likely to see sustained growth.
• Monitor FII/DII Flows: While FIIs react to global cues, DIIs provide a critical stability factor. Sustained DII buying indicates underlying domestic confidence in the Indian stock market.
• Stable Macro Environment: The RBI's unchanged repo rate and neutral stance signal a commitment to price stability and growth, providing a conducive environment for long-term investments.
• Global Trade Tailwinds: Positive developments on global trade deals, such as the recent US Supreme Court ruling, can provide intermittent boosts to market sentiment and export-oriented sectors.

FinScann Verdict

FinScann analysis suggests that the Indian markets' surge on February 23, 2026, despite significant IT sector woes, highlights the robust and diversified nature of India's economic growth. While the tech sector navigates structural changes driven by AI disruption, strong domestic fundamentals, proactive government policies, and a stable monetary environment are providing ample support from other sectors. Investors should maintain a strategic, long-term perspective, focusing on quality companies in sectors aligned with India's inherent growth drivers, and carefully evaluate opportunities in the IT space post-correction.

Q: What is causing the decline in the Indian IT sector? A: The Indian IT sector is primarily declining due to fears of AI-led disruption impacting traditional service models, a global slowdown in tech spending, and significant Foreign Institutional Investor (FII) outflows. Concerns exist that AI automation could transform IT services delivery, affecting future growth and revenue.

Q: Which sectors are performing well in the Indian market right now? A: Sectors currently performing well in the Indian stock market include Banking and Financials, Capital Goods, Infrastructure, Manufacturing, Defence, and Renewable Energy. These sectors are benefiting from robust domestic demand, government capital expenditure, and a favourable policy environment.

Q: How is the RBI's monetary policy impacting the markets in February 2026? A: The RBI's monetary policy in February 2026 has kept the repo rate unchanged at 5.25% with a neutral stance. This decision, driven by subdued inflation and a strong growth outlook, is providing stability and predictability, creating a conducive environment for credit expansion and overall economic growth, which is positive for markets.

Q: What is the significance of FII and DII data in understanding Indian market trends? A: FII (Foreign Institutional Investor) and DII (Domestic Institutional Investor) data are crucial indicators reflecting institutional investor sentiment and activity in the Indian stock market. When FIIs are net buyers, it often indicates positive global sentiment, while DIIs act as a significant stabilizing force, absorbing FII selling and reflecting domestic confidence, helping to cushion market volatility.

Q: What is the outlook for the Indian stock market for the rest of 2026? A: The Indian stock market outlook for the rest of 2026 appears cautiously optimistic. Despite short-term volatility and sectoral challenges like those in IT, the broader market is expected to remain resilient, supported by strong domestic fundamentals, sustained government capex, and a stable monetary policy. Opportunities are likely to emerge in sectors driving India's long-term growth story.

Disclaimer: For information only; not investment advice. Stock market investments carry risks. Please consult a SEBI-registered advisor before investing. FinScann assumes no liability for decisions made based on this report.