Infosys Ltd, India’s second-largest software services exporter, reported a steady start to fiscal 2026, with robust revenue growth and cash flow strength offset by a subdued outlook that reflects ongoing weakness in the global IT demand environment.

The company posted revenue of $4.94 billion for the quarter ended June 30, 2025, up 3.8 per cent year-on-year and 2.6 per cent sequentially in constant currency. However, despite resilient topline growth driven by momentum in enterprise AI and large deal wins, management revised full-year revenue guidance sharply downward to 1–3 per cent growth in constant currency—significantly below street expectations.

Profitability Pressured; Margins Narrow Slightly

Operating margin for the quarter stood at 20.8 per cent, slipping 30 basis points year-on-year and 20 basis points sequentially. Basic earnings per share rose 5.8 per cent to $0.20, while return on equity improved by 140 basis points to 30.4 per cent.

Free cash flow remained a bright spot, rising to $884 million—109 per cent of net profit—for the fifth consecutive quarter with cash conversion exceeding 100 per cent, underscoring effective capital discipline amid volatile currency conditions.

Large Deals and AI-led Strategy Drive Momentum

Infosys secured large deals worth $3.8 billion in Q1, with net new wins accounting for 55 per cent of the total—pointing to increased client consolidation and wallet share. CEO Salil Parekh attributed the wins to the company’s “distinct competitive positioning” and ongoing investments in enterprise AI.

The company highlighted several AI-led initiatives, including expanded partnerships with Select Portfolio Servicing and E.ON, and AI-powered automation within its cloud-based Accounts Payable solution.

Sectoral Expansion, But Macroeconomic Headwinds Loom

Infosys deepened engagements across financial services, telecom, energy, and sustainability. Notable wins include partnerships with AIB, DNB Bank ASA, Yorkshire Building Society, Spark New Zealand, and Perfection Fresh.

Yet, despite sectoral wins, the company maintained its operating margin guidance at 20–22 per cent and struck a cautious tone on client spending patterns. Analysts view the weak revenue outlook as a sign of persistent macro pressures and delayed technology investments, particularly in North America and BFSI.

Q2 FY25 Recap Shows Continued Growth Trajectory

For context, Infosys’ Q2 FY25 (Jul–Sep 2024) revenue stood at $4.89 billion, up 3.8 per cent quarter-on-quarter and 3.3 per cent year-on-year in constant currency. Net profit was estimated at $809 million, with EBIT margin stable at 21.1 per cent. Large deal TCV during that period stood at $2.4 billion.

Brokerage reaction to Q2 was mixed, with several firms such as Nomura and Citi maintaining bullish stances due to solid deal wins and segment recovery, while others flagged margin stagnation and a tepid broader industry outlook.

Analyst Reaction: Resilient Performance, Conservative Guidance

“Q2 and Q1 both show that Infosys is outperforming peers on revenue, but management’s cautious guidance puts a cap on near-term enthusiasm,” said an analyst at Kotak Institutional Equities, adding that Infosys’ revised guidance trail rivals and falls short of an expected cyclical rebound.

Emkay Global and BNP Paribas acknowledged Infosys’ leadership in digital and AI-driven transformation but warned that investor sentiment remains vulnerable to any signs of further slowdown in large deal closures or margin erosion.

Outlook: Growth Path Steady but Narrow

While Infosys remains well-positioned in AI and digital transformation, the narrowed FY26 revenue guidance signals limited upside in the near term. With a strong pipeline of large deals and continued efficiency in cash management, the company retains key financial levers—but macroeconomic headwinds and muted client spending could weigh on growth momentum

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