Infosys Projects Slower Revenue Growth Amid Global Economic Uncertainty

In a recent update, Infosys, India’s second-largest IT services provider, has adjusted its revenue growth forecast for FY26, signaling a more cautious outlook. The company highlighted that global corporations are scaling back their technology investments due to increasing economic and geopolitical challenges. Based in Bengaluru, Infosys anticipates revenue to either stagnate or increase by a mere 3% in constant currency terms for FY26, a significant drop from the 4.5% to 5% growth previously expected for FY25.

Insights from Leadership

Salil Parekh, the CEO of Infosys, acknowledged the prevailing uncertainty in the market. “The environment has its challenges, and our three-point guidance reflects this reality,” he noted. The cautious forecast considers potential further declines in the business climate, signaling a need for vigilance among stakeholders.

Economic Context and Industry Performance

The $280 billion IT sector is currently facing multiple hurdles, including inflation and sluggish growth trends. Additionally, client hesitancy, influenced by high interest rates and shifting geopolitical landscapes, is affecting decision-making processes. Although firms like Infosys are exploring innovative technologies such as generative AI to attract clients, many remain hesitant to engage in significant transformation initiatives. This tempered outlook aligns with observations from Infosys’ competitor, Tata Consultancy Services, which recently noted delays in client decision-making.

Profitability Amid Challenges

Despite the cautious revenue forecast, Infosys reported a 3.3% increase in profit, reaching Rs 7,033 crore, which surpassed analyst expectations of Rs 6,698 crore. The company has set its operating margin guidance for FY26 at 20%-22%. However, its Ebit margin fell by 30 basis points to 21% due to increased wage expenses and costs associated with acquisitions.

Market Reactions

Following the earnings announcement, Infosys’ American Depository Receipts fell by 5% on the New York Stock Exchange. In India, the stock closed with a 1% increase on the NSE at Rs 1,427.7 after the market closed for the day.

Financial Insights

Jayesh Sanghrajka, the CFO, pointed out that rising employee compensation was the primary challenge impacting margins, contributing to a 140 basis point decline. Nonetheless, this was partially mitigated by reductions in post-sale support and third-party costs.

Deal Pipeline and Regional Performance

Infosys secured a total contract value of $2.6 billion in large deals during the quarter, slightly up from $2.5 billion in the previous quarter. Of the $11.6 billion in large contracts signed during FY25, 56% were new contracts, showcasing the company’s ability to generate fresh business despite broader economic challenges.

Regionally, North America experienced a 0.4% decline in revenue year-on-year, contributing 57.1% to total revenue. Conversely, Europe and India saw impressive growth, with increases of 15% and 43.7% respectively, while revenues from other regions fell by 2.2%.

Sector-Specific Performance

In terms of sector performance, the financial services segment, being the largest for Infosys, experienced a 12.6% year-on-year rise in constant currency. The manufacturing sector followed with a 14% increase, although the retail, hi-tech, and life sciences segments saw declines ranging from 1% to 3.5%.

Future Focus on AI

Looking ahead, Infosys is heavily investing in artificial intelligence as a driver for growth, actively engaging in over 400 projects related to generative AI. “The shift towards AI is substantial, and we’re at the forefront of this transformation with our clients,” Parekh added, emphasizing the development of 200 AI agents now being deployed within client operations.

In conclusion, while Infosys is grappling with a complex economic landscape, its strategic focus on emerging technologies and new business acquisition highlights its commitment to navigating the challenges ahead.