Indian IT Sector’s $68.5 Billion AI Shock: How Claude Code’s COBOL Breakthrough Triggered the Worst Monthly Crash in 23 Years

The Anthropic Catalyst: Why COBOL Matters

The trigger for this systemic panic was a technological announcement by Anthropic, the AI research laboratory behind the Claude family of models. Anthropic published a comprehensive “Code Modernization Playbook,” demonstrating that Claude Code could autonomously read, analyze, and modernize COBOL (Common Business-Oriented Language) codebases. [3]

Developed in 1959, COBOL remains the hidden bedrock of the global financial system. Despite its age, it currently processes approximately 95% of global ATM transactions, alongside maintaining critical digital infrastructure for airlines, insurance firms, and legacy government databases built decades ago. [3] Because COBOL expertise is rapidly dwindling as older programmers retire, companies like IBM and Indian IT service providers have enjoyed a highly lucrative, captive market for maintenance and migration work. [4]

Anthropic’s assertion that Claude Code can automate the exploration, dependency analysis, and translation phases of COBOL modernization—reducing project timelines from years to financial quarters—represents an existential threat to this established business model. [4] Upon publication, IBM’s stock plummeted 13.2% in a single day, erasing nearly $30 billion in market value in its steepest decline in 25 years. [3]

The Immediate Impact: $68.5 Billion Wiped from Indian IT

The ripple effects struck India’s $283 billion IT services sector within hours. The Nifty IT index crashed by nearly 5% in a single trading session, wiping out $68.5 billion in market capitalization across its top ten constituents. [8] Major industry leaders including Tata Consultancy Services (TCS), Infosys, Wipro, and HCLTech saw their stock prices drop between 2.7% and 6.1%. [10]

The sell-off pushed the IT index to a 30-month low, marking a 21% decline for the month of February 2026. [10] Analysts noted this represented the sector’s worst monthly performance in 23 years, drawing parallels to the geopolitical panic surrounding the 2003 U.S.-Iraq war and the SARS virus outbreak. [10]

The Structural Vulnerability: Labor Arbitrage Under Siege

India’s IT services sector has historically derived its competitive advantage from one core factor: labor arbitrage. Indian IT companies provide large workforces of skilled engineers at significantly lower cost than Western equivalents, making them indispensable partners for maintaining, migrating, and modernizing legacy enterprise systems. [4]

The Anthropic announcement fundamentally threatens this model. If AI can automate the exploration, dependency analysis, code comprehension, and translation phases of COBOL modernization, the labor-intensive, multi-year engagement model that generates billions in recurring revenue becomes structurally obsolete. [4]

Market analysts at Jefferies flagged concerns over rich valuations amid the AI risk, warning of a 6% to 7% deflationary impact on contract pricing as enterprise clients force contract resets in anticipation of AI-driven efficiencies. [10] The market panic was further amplified by a widely circulated research memo from Citrini Research that modeled a severe AI-driven economic shock resulting in mass white-collar layoffs across Indian IT majors. [1]

The Industry Pushback: Can AI Really Replace 50 Years of Integration?

Industry executives attempted to frame the disruption as an opportunity rather than an existential threat. HCLTech CEO C. Vijayakumar noted that deploying AI within complex, 50-year-old enterprise environments remains highly difficult, and that decades of hardware-software integration cannot be replicated by moving code alone. [6]

Cognizant India Managing Director Rajesh Varrier pushed back against what he called premature “obituaries” of the industry, arguing that the complexity of real-world enterprise environments goes far beyond code translation. [10] IBM itself echoed this sentiment, emphasizing that its mainframe ecosystem encompasses hardware, middleware, databases, and decades of regulatory compliance that cannot be abstracted away by a language model. [6]

However, the market reaction indicated a profound sentiment shift from “buy on dips” to “sell on rise,” suggesting investors have begun pricing in structural AI deflation regardless of the near-term technical limitations. [10]

The Sector Rotation: Infrastructure vs. Technology

Despite the massive drawdown in IT stocks, the broader Indian equity indices managed a measured structural recovery by late February. The BSE Sensex rallied to reclaim the 82,900 level, while the NSE Nifty 50 recovered above 25,600. [7]

This recovery highlights a critical macroeconomic rotation within the Indian economy. While export-driven, labor-intensive technology services face structural AI headwinds and unexpected U.S. visa fee hikes projected by Moody’s to cost Indian IT majors $100–$250 million, the domestic economy remains robust. [1]

Domestic Institutional Investors (DIIs) acted as a powerful stabilizing force, aggressively reallocating capital away from tech and into heavy infrastructure, state-owned lenders, and domestic consumption stocks. The market saw massive fortnightly inflows of ₹33,487 crore into capital goods, financials, and oil & gas sectors. [11]

Companies such as Larsen & Toubro, Tata Steel, NTPC, PowerGrid, and major banks (ICICI, Axis Bank, State Bank of India) led the recovery, supported by solid corporate earnings, a fiscally prudent Union Budget, resilient private sector PMI readings, and the Reserve Bank of India (RBI) maintaining a neutral policy stance with the repo rate at 6.25%. [7]

Structural Outlook: The Two Indias

The Indian market is functionally splitting into two distinct economic narratives. On one side, an AI-threatened external tech sector struggles to justify historical valuations as generative AI systematically erodes the labor arbitrage that built a $283 billion industry. On the other, a robust infrastructure-led domestic economy continues to attract deep domestic liquidity, driven by government spending, private consumption, and a population increasingly oriented toward internal economic development. [7][11]

For global investors, the message is unambiguous: capital will continue to rotate ruthlessly away from human-heavy tech maintenance toward compute-heavy AI generation and domestic industrial capacity. The Indian IT sector’s $68.5 billion single-session wipeout was not a panic-driven overreaction but a structural repricing of the sector’s competitive moat in an era where AI can perform the same work at a fraction of the cost and time.