Infosys flags intensifying pricing pressure as clients demand higher AI productivity

“We have also seen pricing pressure on the back of competitive intensity and higher ask on productivity,” Infosys Chief Financial Officer Jayesh Sanghrajka said during the company’s Q2 FY27 earnings press conference on October 23. He cautioned that pricing pressure would continue into the second half of the financial year, alongside the impact of employee compensation increases. “We will see continued intensity of pricing.

So we will see that as a headwind,” Sanghrajka said. The comments highlight the growing challenge facing India’s IT services industry as enterprises increasingly expect technology vendors to pass on productivity gains from AI through lower costs, even as IT companies invest heavily in building AI capabilities. Infosys Chief Executive Officer Salil Parekh acknowledged that AI was creating opportunities for new business while simultaneously putting pressure on revenue from existing services.

He added that the company would remain selective about the contracts it accepts, prioritising deals that meet its financial expectations rather than pursuing growth at the expense of profitability. “There’s competitive intensity because of that and we have been extremely clear that we will only take on the contracts where it meets our economic guidelines,” Parekh said. Clients seeking higher AI productivity gains

Parekh said enterprises were increasingly looking to derive significant productivity benefits from AI adoption, but some client expectations exceeded the improvements Infosys could deliver. “Sometimes the asks are much higher than what we can derive from the AI productivity, which is where we say that it doesn't fit our economic profile,” he said. The company has been investing in its Topaz Fabric platform and other AI capabilities to deliver productivity improvements while protecting its margins.

The pricing pressure comes despite strong growth in Infosys’s AI business. AI revenue accounted for 10.5% of the company’s total revenue in the September quarter, compared with 8.2% in the preceding quarter, and grew 29% sequentially. Margins remain under pressure Despite the pricing challenges, Infosys maintained its operating margin at 21% during the quarter, but missed CNBC-TV18 poll estimates of 21.3%.

Sanghrajka said the company would continue relying on operational efficiency measures under Project Maximus to offset pricing pressure and compensation-related costs in the second half of the year. The company also reported softer volumes and weaker discretionary spending in retail and high-tech, which contributed to the downward revision in its revenue growth outlook. Parekh said Infosys was focused on expanding its AI services business and pursuing large transformation deals while maintaining discipline in contract pricing.

The company reported large deal wins worth $5.2 billion during the quarter, including a net-new mega deal worth over $2 billion and a $1-billion renewal. However, the net-new mega deal is expected to begin ramping up only towards the latter part of the fourth quarter, limiting its contribution to FY27 revenue. The company expects the deal to contribute more than one percentage point to revenue growth in the next financial year.