The Indian stock market made a muted debut on Monday after the Reserve Bank of India tightened lending norms on capital markets. This was the result of last week’s sell-off in the IT sector and declines in brokerage stocks amid AI-driven pressure. For a sector that has long been seen as a steady compounder, this sudden correction left investors unsettled, overpowering investor optimism surrounding the U.S.-India trade deal. 

Benchmark indices barely shifted, and broader markets underperformed; meanwhile, sectoral rotation brought Pharma stocks into focus, giving them a new lease of life.

Supported by a higher-low formation on weekly charts above the 14,000 level, the Nifty Healthcare Index showed signs of a technical rebound. In short, investors are seeking refuge in the healthcare sector, which is perceived as more resistant to AI disruption.

RBI Tightens Capital Market Lending Norms

As part of a regulatory move, the Reserve Bank of India has recently issued a revised framework tightening banks’ exposure norms to capital market participants. Effective from April 1, 2026, these changes have been designed to reinforce prudential lending standards, but at the same time have an impact on brokerage, exchange, and intermediary stocks.

What Changed in RBI’s Lending Norms?

Under the new directives: 

• Banks shall provide credit to brokers and capital market intermediaries only on a fully secured basis. This will eliminate previously common unsecured or partially guaranteed lending practices.

• Bank guarantees (BGs) will require at least 50% collateral, with a minimum of 25% in cash.

• Funding for proprietary trading by brokers is explicitly prohibited, except for limited market-making activities, which traditionally attract narrower margins.

• Equity used as collateral will attract a heavy haircut (e.g., minimum 40%). 

These measures will help to strengthen systemic safeguards as well as raise funding costs and shrink leverage for capital market intermediaries.

 Immediate Market Reaction

Markets responded swiftly:

• The BSE index plunged up to 9.5–10% on February 16, making it one of the worst-hit segments.

• Brokerage stocks such as Groww, Angel One, Motilal Oswal Financial Services, and other intermediaries saw sharp declines. 

Devarsh Vakil, Head of Prime Research at HDFC Securities, noted that the new Reserve Bank of India (RBI) norms regarding bank lending to stockbrokers will increase costs for market intermediaries and dampen derivative trading volumes. 

Brokerage and Exchange Stocks

The tightening of capital market exposure norms has had uneven effects across listed intermediaries and exchanges.

Exchange Operators

• BSE Ltd. saw its shares fall most sharply. Jefferies suggested the new norms could impact BSE’s earnings by up to 10% due to reduced volume and leverage in key trading segments.

Exchanges often benefit from high turnover in derivatives, where margin trading and proprietary activity boost transaction volumes and fee income. If these activities slow, revenue growth may be muted.

Sector Rotation

Select defensive and earnings-driven sectors showed relative strength even while tech and capital market stocks struggled. 

1. Pharma Sector Outperformance

During these times, the pharma index gained around 0.9%, standing out amid sectoral divergence.

Key names such as Torrent Pharmaceuticals reported strong quarterly profits, buoying sentiment in the space. Additionally, Natco Pharma rallied following news of regulatory approval to launch semaglutide in India, tapping into the obesity drug market.

This rotation underscores a market preference for earnings visibility and defensiveness, particularly in a regulatory and macro-uncertain environment.

2. Other Defensives 

In addition to pharma, sectors such as utilities, select consumer staples, and defensive financials have shown resilience as investors seek stability amid macro crosscurrents and tightening financial conditions.

What Triggered the Market Reaction? 

Analysts believe that a new automation tool launched by the AI companies could be perceived as a threat to traditional IT services models. Anthropic has recently launched 11 new plugins for Claude Cowork, triggering a $285 billion market sell-off in early February 2026. These plugins are aimed at automating complex business tasks across functions such as legal, sales, marketing workflows and data operations. 

At the market close, the Nifty IT index plunged to 25,571.15. Companies like TCS, Infosys, and Wipro have been the worst hit, with a loss of nearly ₹1.3 lakh crore of their market value. 

Here’s a look at some key market data trends to watch out for: 

IT Stocks Not Recovering?

The IT sector has been showing a notable weakness in recent sessions, extending losses and dragging broader sentiment. According to recent industry developments, the selling pressure on Indian IT services firms is largely due to anxiety caused by a structural shift with AI.  

Apart from cyclical factors, analysts have also identified core structural concerns that are reshaping the sector’s long-term outlook: 

• AI-Driven Role Substitution 

• Disruption of traditional IT services 

• Recalibration of digital budgets 

• Focus on in-house AI development
  
  

 In 2025, foreign investors had already been cautious on Indian IT stocks, and the latest scare has accelerated the trend. In the past year, offshore funds pulled a record $8.5 billion from India’s IT sector amid concerns about AI disruption and slowing growth. Later in the year, foreign ownership of Indian equities had fallen to a 15-year low, with IT stocks accounting for nearly half of all foreign equity outflows. This means that the AI scare has been doing its rounds long before February this year.  

Over the last few months,  Foreign Institutional Investors (FIIs) have sold off Indian stocks worth over 2.23 lakh crore. Recently, FIIs bought Indian stocks worth ₹5,236.28 crore, a day after the India-US trade deal was announced, signalling that the worst of FII selling may be over soon. However, the buying slowed significantly on February 4.

IT Sector Continues to Weigh on Market Sentiment: 

While IT continues to face pressure from fear‑driven derating, resilient pockets in the market, including strong traction in PSU stocks, select pharma counters, and capital‑market‑linked names, are driving sector‑specific opportunities despite the lack of a clear index trend. 

The IT sell-off will continue to weigh on markets in the near term. The mild recovery in IT ADRs is unlikely to support IT stocks. Institutions are likely to continue selling IT stocks and switch to sectors like financials, automobiles, capital goods, telecom and pharma where there is good earnings growth visibility," said V.K. Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd. 

Impact of AI Automation:

With the fear around AI automation, India’s IT stocks have slumped sharply, dragging benchmarks to weekly losses. The Nifty IT index was down by 5% as investors are reassessing the potential impact of AI on traditional business models, while job growth in the U.S. is also adding to market uncertainties.

“The overall sentiment is likely to remain cautious as investors monitor global AI-driven disruptions and geopolitical risks, while improved valuations and constructive GDP forecasts may help sustain FII inflows,” shares Vinod Nair of Geojit Investments.