Topic 1: EQUITY: SWIVELLING EFFECT

February 2026 proved to be a month of sharp cross-currents for Indian equity markets. After an early surge and multiple volatility spikes, the Sensex closed the month with a modest decline of roughly 1–1.3%. While the headline number suggests a mild pullback, the internal churn beneath the surface was far more dramatic, driven by sector-specific shocks, policy surprises, shifting foreign flows, and global macro tensions.

The benchmark began February on a strong footing, buoyed by improved risk sentiment and renewed buying interest. On 1 February, the index settled at 81,666.46 after a sharp jump, reflecting optimism around domestic growth cues and foreign investor participation. However, momentum soon tapered. Through mid-February, the market traded in a tight consolidation band. By the week ended 20 February, the Sensex had managed a marginal weekly gain of just 0.23%, closing near 82,814.7. This stability masked growing stress within certain heavyweight sectors. By 27 February, the index had drifted back toward the 81,300 zone, turning the month marginally negative. On a calendar-year basis, the Sensex was down about 2.8% by mid-month, reflecting corrective pressure after the early January peak near 85,762. Despite February’s dip, the index remained roughly 11% higher than a year earlier. The broader 12-month uptrend was intact. What February represented was less a structural breakdown and more a consolidation phase within a longer-term positive trajectory.

The defining feature of February was the brutal selloff in technology stocks. The NIFTY IT index plunged nearly 19.5% during the month — its steepest fall since the 2008 global financial crisis. Approximately ₹5.7 trillion in IT market capitalisation was erased. Heavyweights faced aggressive derating as concerns mounted that rapid AI automation in the United States could disrupt traditional Indian outsourcing models. Large exporters were hit hardest, amplifying intraday swings in the broader benchmarks given their significant index weights. The market began reassessing growth visibility, pricing power, and long-term competitive positioning for Indian IT majors in an AI-driven global landscape

The second volatility catalyst came from the Union Budget 2026, presented on 1 February. While the Budget was growth-oriented in its macro framing, markets reacted sharply to changes in derivatives taxation. The Securities Transaction Tax (STT) on futures was raised by approximately 150%, and on options by around 50%, materially increasing trading costs. On Budget Day, the Sensex plunged nearly 2% intraday, falling over 2,300–2,400 points from its peak and wiping out an estimated ₹10–11 lakh crore in investor wealth in a single session. The India VIX jumped roughly 11%, reflecting an abrupt repricing of risk. Higher derivatives costs triggered aggressive unwinding in index and stock futures. Liquidity thinned temporarily as algorithmic and high-frequency traders recalibrated positions. Brokerage

and capital-market-linked stocks saw sharp declines on fears of lower F&O volumes and revenue pressure. One of the most significant undercurrents in February was the dramatic reversal in foreign portfolio investor (FPI) flows. After three months of heavy selling — with outflows of over ₹62,000 crore between November and January — foreign investors turned decisive net buyers. In February alone, FPIs infused approximately ₹22,615 crore into Indian equities, the strongest monthly equity inflow in around 17 months. Including debt, total FPI inflows crossed ₹31,000 crore. The shift was driven by several factors: a growth-oriented fiscal stance, an interim India–US trade agreement reducing tariff overhang, softer-than-expected US inflation, improved Q3 FY26 earnings growth of roughly 14.7% and lastly valuation corrections after the late-2025 selloff. However, flows were not uniform. While financials and capital goods attracted buying, IT continued to see heavy foreign selling — roughly ₹10,956 crore in February alone. The message was clear: foreign capital was rotating, not retreating.

Beyond domestic factors, global uncertainties added to volatility. Rising tensions surrounding a US ultimatum to Iran pushed oil prices above $70 per barrel, lifting the equity risk premium. Late in the month, selling pressure spread to private sector banks. Heavyweights such as ICICI Bank, Kotak Mahindra Bank, and HDFC Bank contributed significantly to a large single-day drop on 26 February. Given their combined weight in the index, even moderate declines in these stocks amplified benchmark weakness. At least five sessions during the month recorded declines exceeding 1, underscoring the elevated day-to-day swings.

Despite the noise, the structural underpinnings of the market remained constructive. Earnings growth was intact. Domestic macro indicators were stable. Capital expenditure momentum continued. Foreign investors returned selectively. February 2026 ultimately illustrated a market transitioning from momentum-driven euphoria to a more discriminating, fundamentals-driven phase. The IT rout forced valuation recalibration. The Budget-induced derivatives change reshaped trading dynamics. Global tensions injected episodic risk aversion. Yet capital did not flee — it rotated.

For market players, the key takeaway is that February’s decline was not a systemic breakdown but a corrective consolidation within a broader uptrend. With valuations reset in select sectors and foreign flows stabilising, the month may well be remembered as a volatility shock that strengthened market structure rather than weakened it. In equity markets, periods of discomfort often lay the groundwork for more sustainable advances. February 2026 was one such chapter.