Infosys cuts FY27 guidance; Q2 net profit rises 6.2% to ₹7,828 crore

Information technology services firm Infosys, the country’s second-largest, has reduced its revenue forecast for 2026-27 because growth in its largest market, the United States (US), is expected to weaken and deflationary pressure from artificial intelligence (AI) is anticipated to increase.  

On Friday, the company said it expected revenues to grow 1-2 per cent in constant currency, down from the 1.5-3 per cent it expected three months ago. 

Its net profit for the second quarter rose 6.2 per cent to ₹7,828 crore while revenues were up 10.7 per cent to ₹49,244 crore, helped by its financial-services, and energy and utilities businesses. While net profit missed analyst estimates, revenues exceeded those.  Analysts polled by Bloomberg had expected net profit and revenues to be ₹7,904 crore and ₹49,108 crore, respectively. 

Dollar revenues were up 1.3 per cent while in constant-currency terms, the increase was 1.5 per cent, which was just more than Wipro’s 0.6 per cent. 

The Bengaluru-based company grew at its slowest pace in at least six quarters. On top of it, the outlook was clouded by AI deflationary pressure, lower than expected discretionary spending, sector-specific softness, and an ongoing volatile economic environment. These are expected to make the second half tougher than the first. 

“It was a soft quarter for us. The volumes were softer and in AI we are also seeing compression. We are only taking up contracts that meet our economic guidelines,” Chief Executive Officer (CEO) and Managing Director (MD) Salil Parekh said. 

With little visibility on large deals, the impact was evident on Infosys’ US-listed shares, which were down almost 6.4 per cent in pre-market trading. 

The total contract value of large deals won during the three months of the quarter was $5.2 billion, which included one of more than $2 billion. However, the benefits will kick in from April. 

Such deals are geared towards cost optimisation and vendor-consolidation projects. They take time to materialise. In a subdued demand, large deals would also mean fierce competition among players, leading to margins being eroded. 

The positive aspect of the results was AI revenues. Infosys also said its AI revenues accounted for 10.5 per cent of its top line, up from the 8.2 per cent in the first quarter and growing 29 per cent sequentially. That market opportunity, which Parekh held up as a $300 billion opportunity, consists of AI strategy and engineering, the data for AI, process AI, agentic legacy modernisation, physical AI and AI trust. 

“Although the operating margin remained stable at 21 per cent, the weaker growth outlook is likely to remain the key focus for investors. If Infosys continues to rely on acquisitions to support reported growth without a meaningful recovery in its underlying business, the market could begin to assign it a lower valuation multiple,” Manav Medewala of Mirae Asset Sharekhan wrote in a note. 

Financial services, the main contributor to revenues, were up 2.1 per cent while energy, utilities and resources increased 7.3 per cent. Retail, which still faces headwinds, was down 7.7 per cent and hi-tech dipped 17.3 per cent. North America revenues dropped 1.5 per cent while those of Europe were up 4.6 per cent. 

The operating margin was nearly flat at 21.1 per cent with positive currency impacts and higher working days more than offset by acquisition-related efforts. “The second half will be impacted from wage hikes and the continued intensity on pricing,” Chief Financial Officer Jayesh Sanghrajka said. 

The company added 4,480 employees and the headcount was 332,542 at the end of September. Voluntary attrition was 12.7 per cent and it hired 8,000 freshers in the quarter.