Infosys fares better than expected, steers clear from big-bang AI announcements

Infosys, India's second-largest IT services firm, ended the September quarter with $5.08 billion in revenue, up 2.66% from the June quarter and 3.77% from the previous year. More than half of the gains came from banks and financial institutions, the company’s biggest client base.

The Q2 performance of Wipro, India's fourth-largest IT firm, was relatively sedate. Its revenue was $2.6 billion, up 0.65% sequentially and down 2.1% on a yearly basis. Like Infosys, much of its business was pulled up by banks, while revenue from most other verticals declined. Banks make up a little more than a third of Wipro's business.

This wraps up earnings for India's five largest IT companies, with the biggest—Tata Consultancy Services—reporting the weakest performance and third-largest, HCL Technologies Ltd, proving to be an outlier.

TCS, HCL Tech and Tech Mahindra Ltd ended the second quarter with revenues of $7.47 billion, $3.64 billion, and $1.59 billion, up 0.61%, 2.79%, and 1.41% on a sequential basis, respectively.

First-half fare

Three of the Big Five grew revenues in the first half of the fiscal year; the rest didn't.

While revenues at Infosys, HCL Tech and Tech Mahindra grew 4.3%, 5.6% and 0.1% to $10 billion, $7.19 billion and $3.15 billion respectively during the first half, TCS and Wipro saw revenue decline—down 1.9% to $14.89 billion for TCS and 1.8% to $5.19 billion for Wipro.

This raises a warning sign for the two companies, since the first half is traditionally stronger for homegrown IT services firms due to more billing days and fewer holidays.

For now, the mood at Infosys’s Electronic City campus was one of caution.

The environment remains “uncertain", chief executive Salil Parekh said at a post-earnings press conference. “What we see today is some changes in where the global environment, the macro is looking. We still see in some of our large markets that there is growth, but there's also some inflation, job creation which is constrained. In some other markets, there are cost constraints. Some industries are seeing that. So that's a mix," Parekh said.

Parekh’s views were similar to the ones earlier voiced by TCS chief executive officer (CEO) K. Krithivasan, who had pointed to “lingering uncertainty" in the broader economic environment.

Wipro does not expect any “dramatic uptick" in discretionary spending by large clients, CEO Srini Pallia said. “But having said that, the discretionary spend is moving more and more into AI and AI-related projects," Pallia said at the company’s post-earnings press conference, adding it is important for the clients to take the cost out as they make their budgets, involving that for IT-related work.

This is in sync with HCLTech, whose management said that the macro environment was more or less unchanged. However, fifth-largest Tech Mahindra Ltd said that although the environment was stabilizing and maybe improving in parts, it is still fragile.

Demand blues

Indian IT is navigating an uncertain demand environment, largely due to US President Donald Trump’s regulatory uncertainties and macro-economic challenges brought about by trade tussles between the world’s largest economies.

The lack of clarity on demand is reflected in the companies’ guidance. Infosys upgraded the lower end of its guidance for the full year, expecting revenue growth of 2-3% in constant currency terms. However, it did not upgrade the upper end of its guidance, despite clinching a $1.6 billion contract with the UK's NHS two days back.

This is similar to HCLTech, which retained its full-year guidance of 3-5% in constant currency terms. Constant currency does not take currency fluctuations into account.

However, Wipro expects $2.59-2.64 billion in revenue for the third quarter, a sequential decline of 0.5% to an increase of 1.5% in constant currency terms. Pallia said Wipro's focus was to convert the order backlog into active revenue and grow profitably. Wipro does not issue a yearly guidance.

To be sure, TCS and Tech Mahindra do not give quarterly or yearly guidance, but each of them expect a better second half for their services revenue.

While four of the Big Five has big plans on AI, Infosys is more cautious.

“We are doing a lot of projects on enterprise AI with clients on growth, which is focused, like in the sales function or the marketing function, or on cost, which is focused on many of their processes, optimizing them on customer service, and on core development," said Parekh.

Earlier, TCS announced plans to invest above $6 billion over a five to seven-year period in building and running a 1 GW data centre.

But, according to Parekh, Infosys is “comfortable with the (AI) strategy that we have together."

A few miles eastwards, Pallia was “excited," as Wipro announced Wipro Intelligence, its set of AI platforms and solutions, and also broadcast a brief video before it commenced a Q&A session with journalists.

Noida-based HCLTech became the first among the Big Five to announce revenue from AI, reporting $100 million last quarter. The company is doubling down on IP-led software products and platforms. Tech Mahindra, on the other hand, is building a large language model with 1 trillion parameters.

Margins, headcount

Infosys’ operating margins jumped 20 basis points to 21%, driven by offshoring more work to contractors and its margin improvement plan. On the other hand, Wipro’s shrank 60 basis points sequentially to 16.7%. However, this was primarily pulled down by a one-time expense caused by a client bankruptcy. Excluding this, its margins were down 10 basis points to 17.2%.

Another key talking point that emerged before the earnings season kicked off, was headcount. Notably, TCS was the only company of the top five that cut headcount last quarter, mainly in line with the layoffs it had announced in July.

Infosys added 8,203 employees to end September with 331,991 employees whereas Wipro added 2,260 employees to end with 235,492 employees. This implies TCS was the sole Big Five company to end with fewer staff, mainly due to the layoffs announced during the quarter that will shrink its workforce by 2%.

For now, analysts were divided in their approach to the two companies.

“On the AI side, fear of AI being deflationary for Infosys is not there as of now. In fact, it is creating newer opportunities. I think this is a good result in a tough environment. The pipeline is improving, and benefits of deal wins and capacity build-up will be visible by Q4 or Q1," said Amit Chandra, vice-president of HDFC Securities.

However, a second analyst expects more clarity from Wipro.

“We would await more clarity on the ramp-ups of the recently won deals even as Wipro’s large deal wins in H1FY26 have exceeded FY25 bookings," said Manik Taneja, executive director for IT services at Axis Capital.