Infosys cuts growth outlook despite AI deal momentum
Pricing pressure and weak retail, hi-tech demand weigh on FY27 outlook
Infosys on Friday lowered its FY27 revenue growth guidance to 1%-3% from 1.5%-3% earlier, as pricing pressure on large contracts and weakness in key industry segments offset strong growth in artificial intelligence (AI) services and a rise in deal wins. The country’s second-largest IT services company retained its operating margin guidance of 20%-22%, even as the revised outlook pointed to continued challenges in converting demand for technology transformation into faster revenue growth.
The company’s July-September results were mixed. Revenue rose 2.1% sequentially to Rs 49,244 crore, marginally ahead of Bloomberg’s estimate of Rs 49,108 crore, while net profit increased 0.7% to Rs 7,823 crore, below the estimate of Rs 7,904 crore. Constant currency revenue grew 1.3% year-on-year. Earnings before interest and tax rose 1.6% sequentially to Rs 10,330 crore, while the operating margin remained at 21%.
Infosys’ American depositary receipts fell 8% to $12.15 in pre-market trading. 5% of quarterly revenue, compared with 8.2% in July, and growing 29% sequentially. However, the increase has not yet translated into a significant acceleration in overall growth, as weakness in other segments and intense competition for large contracts continue to constrain performance. The challenge for Infosys is to scale its AI business sufficiently to offset pressures affecting its traditional services.
“We had strong large deals of $5.2 billion, including a mega deal of over $2 billion, reinforcing our position as a trusted partner in the marketplace when clients embark on large and complex transformation programs,” CEO and Managing Director Salil Parekh said. Total contract value (TCV) of large deals rose from $3.6 billion in the previous quarter. One of the two mega deals won during the quarter was a net-new, seven-year contract with a large global corporation, expected to contribute more than 1% to revenue growth from FY28.
The company is also facing pressure from clients seeking greater productivity and cost savings, with AI enabling more work to be delivered with fewer resources. This is intensifying competition on pricing even as demand for complex technology transformation remains healthy. Parekh said Infosys would take on only contracts that meet its economic guidelines, underscoring its focus on protecting margins rather than pursuing growth at any cost.
Performance across industry segments remained uneven. Revenue from retail and hi-tech declined 1.3% and 0.9%, respectively, sequentially, while their year-on-year declines were 8.1% and 17.5%. Financial services and energy utilities, in contrast, recorded sequential growth, pointing to stronger technology spending in some sectors even as others remained under pressure. Parekh also cited macroeconomic uncertainty, including tariffs and interest-rate pressures, as factors affecting client decisions.
Infosys has sought to protect profitability through its Project Maximus initiative while continuing to invest in AI, sales, talent and marketing. However, CFO Jayesh Sanghrajka cautioned that employee compensation increases would weigh on margins in the second half of the year. The company’s ability to sustain profitability while funding new capabilities will therefore remain important as it pursues growth.
The results underline a wider challenge for IT services companies: AI is creating new business opportunities, but the efficiency gains it delivers can also limit revenue earned from individual projects. For Infosys, the test will be whether its growing AI business and strong deal pipeline can translate into sustained revenue acceleration without compromising margins. Gartner senior principal analyst Biswajit Maity described the company’s constant currency growth of 1.5% year-on-year as modest but healthy, citing strong large-deal momentum and continued client confidence in its transformation capabilities.
