Indian Stock Market Deep Dive: February 4, 2026

Introduction

Wednesday, February 4, 2026, has emerged as a watershed moment for Indian capital markets. It is a day defined by a stark collision between the perceived existential threat of artificial intelligence (AI) and the structural optimism fueled by domestic policy reforms and a massive infrastructure renaissance. While the Nifty IT Index suffered its most severe blow in recent memory, other pockets of the economy, including precious metals and automotive sectors, displayed remarkable resilience.

For retail investors, this day underscores the complexity of a modern portfolio. The market is currently navigating the "SaaSpocalypse"—a term coined by Wall Street to describe the disruption of traditional software and service models—while simultaneously pricing in a landmark India-U.S. trade agreement and a ₹12.2 lakh crore infrastructure push. This article provides a comprehensive breakdown of the thirteen major developments shaping your investment landscape today.

I. The AI-Driven Technology Apocalypse: Existential Questions for India's IT Sector

The Catalyst: Anthropic's Disruption

The defining story of the day is the catastrophic selloff in the Indian information technology sector. The spark was an announcement by the U.S. AI startup Anthropic, which unveiled advanced workplace productivity tools. These tools are specifically engineered to automate contract reviews, legal compliance, and complex business workflows—tasks that have long been the core revenue drivers for India’s $245 billion IT services industry.

Market Carnage in Granular Detail

The Nifty IT Index plummeted by 5.9% (2,266.10 points), closing at 36,345.65. This single-day rout erased approximately ₹1.9 lakh crore ($22 billion) in aggregate market capitalization. The damage was particularly severe for firms with high exposure to Business Process Outsourcing (BPO) and legal process management.

Table 1: Performance of Major IT Stocks (Feb 4, 2026)

Global markets mirrored this fear. The Nasdaq Composite fell 1.43%, while Goldman Sachs' basket of U.S. software stocks plummeted 6%, losing nearly $300 billion. Even AI beneficiaries like Nvidia and Microsoft saw declines of approximately 3% as investors reassessed the long-term sustainability of cloud and software revenue.

Structural Implications and FPI Exodus

Data suggests the threat is most acute for the BPO and legal segments, which represent 30-35% of Indian IT revenue. Consequently, Foreign Portfolio Investors (FPIs) have accelerated their exit. Over the last 16 months, overseas funds have withdrawn $34 billion from Indian equities. Jefferies has notably slashed its IT sector weighting to 5.6, compared to 9.7 in the MSCI India index—a 42% underweight position.

II. RBI Monetary Policy Committee: A Balancing Act

The Reserve Bank of India (RBI) commenced its three-day Monetary Policy Committee (MPC) meeting today. Under Governor Sanjay Malhotra, the committee is weighing a resilient GDP growth rate of 7.4% against a retail inflation rate that has stayed below the 4% target for 11 consecutive months.

Consensus and Historical Context

An overwhelming 82% of economists expect the RBI to maintain the Repo Rate at 5.25%. This marks a pause after a series of aggressive cuts totaling 125 basis points (bps) since early 2025.

Table 2: RBI Repo Rate Trajectory (2025-2026)

The Rupee and Trade Tailwinds

The Indian Rupee saw its strongest single-day gain in seven years on February 3, surging 1.38% to settle at ₹90.27-90.30 per USD. This strength is supported by the India-U.S. trade deal, which saw U.S. tariffs on Indian goods drop from 25% to 18%. This deal is projected to boost India's GDP by 0.3-0.5 percentage points in FY2027.

III. SEBI's Structural Reforms: Unlocking Wealth and Deepening Markets

1. Corporate Bond Market Strategy

SEBI Chairman Tuhin Kanta Pandey announced a new blueprint to deepen the corporate bond market. Outstanding corporate bonds have reached ₹58 lakh crore, growing at a 12% CAGR over the last decade. Bonds now account for 60% of bank credit to industries, up from 40% just years ago. The focus will now shift to Municipal Bonds, with only 12 issuances to date despite an urban infra need of $840 billion.

2. Special Window for Physical Shares

In a major move for legacy investors, SEBI has opened a one-year special window (Feb 5, 2026, to Feb 4, 2027) for the dematerialization of physical share certificates. It is estimated that ₹2-3 lakh crore in wealth is trapped in physical formats due to lost certificates or succession issues.

IV. The February IPO Boom: ₹24,000+ Crore Pipeline

After a quiet January, the primary market is roaring back. The pipeline for February exceeds ₹24,000 crore, led by high-tech and infrastructure players.

Table 3: Key Upcoming IPOs (February 2026)

V. Banking Sector Reforms and FDI Liberalization

The Ministry of Finance is consulting on raising the FDI limit in state-run banks from 20% to 49%. This move is expected to improve governance and help banks raise the planned ₹50,000 crore via Qualified Institutional Placements (QIPs) in FY2026-27.

Furthermore, the privatization of IDBI Bank is entering its final stages, with the government and LIC looking to divest a combined 60.7% stake. Financial bids are expected this month, with valuations estimated between ₹45,000-55,000 crore.

VI. Precious Metals: Gold Breaches $5,000

In a stunning reversal, Spot Gold climbed 5.8% to reach an intraday high of $5,039.05 per ounce, breaching the $5,000 level for the first time in history. On the MCX, gold futures surged 7% to ₹1,54,354 per 10 grams, while silver jumped 14.28% to ₹2,70,000 per kg.

Investors are flocking to these assets as a "safe haven" amid the tech sector volatility and geopolitical tensions in Ukraine and Iran. Analysts from Goldman Sachs suggest gold could hit $5,500 by year-end.

VII. Auto Sector: Record Sales and Trade Benefits

January 2026 was a record-breaking month for Indian automakers. Tata Motors saw its passenger vehicle (PV) sales jump 47.1%, while Mahindra & Mahindra recorded ₹20,500 crore in bookings in just four hours for its new SUV models.

Table 4: January 2026 Wholesale Performance

The India-EU Free Trade Agreement (FTA) is also a game-changer, slashing import tariffs on European cars from 110% to 10% over time and abolishing tariffs on auto parts, benefiting exporters like Bharat Forge and Motherson Sumi.

VIII. Biopharma SHAKTI: A ₹10,000 Crore Vision

The Union Budget 2026 has introduced the Biopharma SHAKTI scheme to pivot India from a generics hub to a biologics leader. This is critical because Non-Communicable Diseases (NCDs) now cause 63% of deaths in India.

Key Features of Biopharma SHAKTI:

• ₹10,000 crore allocation over five years.
• Creation of 1,000+ accredited clinical trial sites.
• Establishment of 3 new NIPERs (National Institutes of Pharmaceutical Education and Research).
• Training of 1 lakh allied health professionals.

This scheme also aims to protect the sector from potential 250% U.S. tariffs on branded drug imports by strengthening domestic high-value manufacturing.

Key Takeaways

• IT Sector Risk: The 5.9% crash in Nifty IT highlights deep-seated fears of AI cannibalizing traditional BPO and service revenue.
• Policy Stability: The RBI's expected hold at 5.25% and the ₹12.2 lakh crore infra capex provide a solid floor for the broader economy.
• Precious Metals: Gold's breach of $5,000 signals a shift toward defensive positioning among global investors.
• Primary Market: The ₹24,000 crore IPO pipeline suggests that while secondary markets are volatile, corporate confidence in long-term growth remains high.
• Banking Shift: Liberalizing FDI to 49% in state banks could be a major re-rating catalyst for the PSU Bank index.

What This Means for Investors

Historical trends indicate that periods of massive technological disruption—like the current AI wave—often lead to short-term overreactions followed by a flight to quality. Investors may consider monitoring IT companies that are successfully pivoting toward AI infrastructure rather than just labor-intensive services.

Furthermore, the surge in infrastructure capex and the Biopharma SHAKTI scheme suggest that sectors like Cement, Capital Goods, and Healthcare are likely to see sustained structural support. Diversification into gold (via SGBs or ETFs) continues to serve as a prudent hedge against currency and equity volatility.