Sensex Surges 480 Points as US Tariff Relief Counters ₹590 Cr IDFC First Bank Fraud: Market Analysis for February 23, 2026

Introduction

Indian equity markets displayed remarkable resilience on Monday, February 23, 2026, staging a broad-based rally despite being buffeted by one of the most significant banking scandals in recent memory. The BSE Sensex surged 480 points to close at 83,294.66, while the Nifty 50 advanced 142 points to 25,713. The primary catalyst was a landmark US Supreme Court ruling that struck down President Trump's reciprocal tariff regime, providing a massive sentiment boost to India's export-heavy sectors.

However, beneath this seemingly bullish surface, the market grappled with structural challenges. From a ₹590 crore fraud at IDFC First Bank that evaporated ₹14,438 crore in market capitalization to mounting concerns that artificial intelligence could permanently reshape India's prized IT services sector, the day was a study in contrasts. For retail investors, February 23 represented a critical inflection point where global trade dynamics, domestic governance failures, and technological disruption converged to create both unprecedented opportunities and systemic risks.

I. The Tariff Triumph: Supreme Court Ruling Provides Breathing Room

The trading session opened with a significant gap-up as news broke that the US Supreme Court had struck down President Donald Trump's reciprocal tariff regime. This regime had previously imposed duties ranging from 18% to 50% on various Indian exports, creating a massive hurdle for domestic manufacturers.

Immediate Impact on Textiles and Exports

The decision provided immediate relief to export-oriented sectors, particularly textiles, which had been operating under significant margin pressure. The previous tariff structure had placed Indian exporters at a competitive disadvantage compared to regional rivals like Bangladesh (19% tariffs) and Vietnam (20% tariffs).

The Caveat: New 15% Global Tariff Regime

While the ruling was a victory, it was tempered by the immediate imposition of a new 15% global tariff for 150 days under Section 122. Legal experts, including Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that Section 122 allows for tariffs only during a serious Balance of Payments crisis—a condition the US arguably does not currently meet.

Critically, while the previous structure gave India a relative edge, the uniform 15% tariff now places all global exporters on equal footing, neutralizing the specific competitive advantage India had recently enjoyed over its neighbors.

II. Banking Sector Shock: The IDFC First Bank Fraud Scandal

In what is being described as a defining corporate governance failure for 2026, IDFC First Bank disclosed a suspected ₹590 crore fraud at its Chandigarh branch. The fraud involved unauthorized and fraudulent activities in specific Haryana state government accounts, with evidence suggesting the involvement of both employees and third-party entities.

Financial and Market Fallout

The magnitude of the fraud is staggering: it exceeds the bank's entire December quarter net profit of ₹503 crore and represents approximately 1% of the bank's capital net worth. The discovery followed an investigation by the Haryana Finance Department between February 18-22.

V. Vaidyanathan, Managing Director and CEO, attempted to reassure investors, stating the bank has robust maker, checker, and authoriser controls in place. However, the market reaction was swift, with the stock hitting the lower circuit at ₹70.26. AU Small Finance Bank, which was also de-empanelled by the Haryana government alongside IDFC First Bank, fell 6.6%.

Brokerage Outlook on IDFC First Bank

Leading global brokerages quickly adjusted their projections for the bank:

• UBS: Estimated a 22% impact on FY26 profit after tax.
• Morgan Stanley: Estimated a 20% hit to FY26 profit before tax.
• Investec: Downgraded the stock with a lowered target price from ₹105 to ₹92.

III. The AI Reckoning: IT Sector Faces Structural Headwinds

While the broader market celebrated, the Nifty IT index fell 1.49%, extending its 2026 decline to over 15%. This was triggered by a bearish report from Jefferies, which warned of a potential 30-65% valuation derating in worst-case AI disruption scenarios.

The Structural Shift to Consulting

Jefferies identified a fundamental shift where AI may change the IT business mix toward consulting and implementation while shrinking managed services. Since 22-45% of large IT firms' revenues come from application managed services—the segment most vulnerable to automation—the risks are substantial.

Despite a 16% year-to-date decline, Indian IT stocks still trade at a 32% price-to-earnings (PE) premium to Accenture, despite delivering 50% lower earnings growth. This valuation disconnect suggests there may be limited cushion for further disappointments.

IV. PSU Banks: The Unexpected Winners

In a striking contrast to the private banking turmoil, the Nifty PSU Bank index surged to a record high of 9,840.25, gaining nearly 2% intra-day. This sector has outperformed the Nifty 50 by 12% over the past month.

Drivers of the PSU Rally

State Bank of India (SBI) hit a fresh all-time high of ₹1,229.90. Analysts at Axis Securities suggest that earnings have bottomed and expect a 17% CAGR in earnings over FY26-28E. Key drivers include:

1. Credit Cost Improvement: Asset quality remains strong in secured portfolios.
2. NIM Stabilization: Net Interest Margins (NIM) are stabilizing after recent compression.
3. Investor Confidence: Active investors in PSU banks have jumped 44% over the past year.

V. IPO Market: A Study in Contrasts

Clean Max Enviro

The ₹3,100 crore Clean Max Enviro Energy Solutions IPO opened on February 23, seeing 33% subscription by mid-afternoon. While the Qualified Institutional Buyer (QIB) portion was nearly fully subscribed at 0.99 times, retail participation remained low at 0.02 times.

Carlsberg India

Carlsberg confirmed it is exploring a potential $700 million IPO of its India unit. With a 61% surge in net profit to ₹323 crore and sales of ₹8,045 crore in FY24, the listing could value the unit at ₹30,000-35,000 crore, directly challenging United Breweries (UB).

XED Executive Development (GIFT City)

In a historic move, XED filed for the first-ever dollar-denominated IPO in GIFT City, aiming to raise $12 million. This listing on the NSE International Exchange allows investors to invest and exit in dollars, eliminating currency depreciation risk.

VI. Macroeconomic Tailwinds and Headwinds

Currency and Forex

The Indian Rupee strengthened 21 paise to ₹90.73 against the US dollar, supported by Brent crude falling 1.09% to $70.98 per barrel. India's forex reserves hit an all-time high of $725.727 billion, providing a solid buffer against global volatility.

Manufacturing PMI

The HSBC Flash India Manufacturing PMI surged to 57.5 in February, a three-month high. However, input costs rose at the fastest rate in 15 months, suggesting that inflation remains a persistent threat that may force the RBI to keep the key policy rate at 5.25% through 2026.

Key Takeaways for Investors

• Export Relief: The US Supreme Court ruling provides a significant margin tailwind for textile players like Kitex and Trident, though the 15% global tariff remains a monitorable.
• Banking Governance: The ₹590 crore fraud at IDFC First Bank serves as a reminder to monitor internal controls. Institutional investors are currently reassessing private bank exposures.
• IT Sector Caution: Large-cap IT firms (e.g., Infosys, TCS) face structural AI risks. Jefferies suggests mid-cap firms like Coforge may be better positioned for growth.
• PSU Bank Strength: SBI and Indian Bank are hitting record highs, driven by a projected 17% earnings CAGR and improving asset quality.
• GIFT City Emergence: The first dollar-denominated IPO by XED marks a new era for India’s offshore financial hub.

What This Means for Investors

Historical trends indicate that Indian markets often display localized resilience even when specific sectors face structural shifts. The current environment suggests a "barbell strategy" may be effective—balancing high-growth PSU banks and infrastructure plays against more cautious positions in traditional IT services.

Investors may consider monitoring:

1. The resumption of India-US trade negotiations for an interim pact.
2. The findings of the forensic audit at IDFC First Bank by KPMG.
3. The RBI's stance on liquidity, especially as new broker lending norms take effect in April.

Data suggests that while the Sensex is near all-time highs, market breadth is currently narrow. This is a time for stock-specific due diligence rather than broad index-based optimism.