Infosys is poised to experience slight sequential growth in its revenue for the January-March quarter, although profits may take a hit due to seasonal challenges and ongoing macroeconomic pressures. The company is set to unveil its earnings on April 17, with analysts closely monitoring the situation.
Revenue and Profit Expectations
Brokerages are cautious about Infosys’s forecast for FY26, especially given the ongoing softness in discretionary IT spending and uncertainties linked to global geopolitical issues, including trade conflicts.
- Seasonal Challenges: The January-March period has historically posed difficulties for Infosys, and this year is no different. Factors such as client budget resets and wage hikes have been cited as significant contributors to this trend.
- External Pressures: The changing trade policies of the US government are adding to the pressure. For instance, Kotak Institutional Equities predicts a 2.3% drop in sequential revenue due to diminished sales from third-party products and lackluster demand.
- Other estimates include a 0.6% revenue decrease from ICICI Securities, while Elara Capital and Nuvama project a revenue decline of 1% to 2% in constant currency terms quarter-on-quarter.
Profit and Margin Forecasts
Profitability is also expected to decline, with Kotak estimating a 3.3% decrease in net profit and Nuvama projecting a 1.3% drop. The operating margins are predicted to be squeezed due to:
- Annual salary increases for senior staff
- Visa-related costs
- Weaker operating leverage
ICICI Securities anticipates a 50 basis point contraction in Ebit margin, slightly offset by favorable currency shifts and reduced third-party software licensing expenses. Conversely, Motilal Oswal expects a more significant margin reduction of 70 basis points, although it suggests that cost optimization strategies may provide some relief.
Deal Activity and Future Outlook
Despite maintaining a strong deal pipeline, Infosys is facing sluggish deal closures as clients tighten their budgets and prioritize cost-saving measures over new investments. According to Kotak, the total value of large contracts for this quarter is expected to be around $3 billion, a decline from the previous year. Investor focus will likely shift towards annual contract values and the overall quality of contract wins.
Future Guidance
The outlook for FY26 remains cautious, with revenue growth estimates ranging between 1% and 6% in constant currency. Most analysts suggest that Infosys will maintain its operating margin guidance of 20-22%. Investors will be particularly attentive to management’s insights on:
- Client spending habits
- Pricing pressures associated with AI-driven automation
- The broader effects of trade tensions, especially in key sectors like manufacturing and industrials.
Hiring Trends and Workforce Strategy
Hiring practices at Infosys are also under scrutiny. As reported by BNP Paribas, the company is emphasizing internal talent mobility rather than external recruitment. Investors will be keen to hear commentary on the onboarding of fresh talent, lateral hiring, and overall workforce strategies, which are crucial for understanding demand momentum and cost management in the upcoming quarters.
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